Qantas Annual Report 2015

Q A N TA S A N N U A L R E P O R T 2 015

A S T RONG, S U S TA IN A BL E F U T URE

CONTENTS

QANTAS ANNUAL REPORT

Chairman’s Report 02

CEO’s Report 04

Financial Overview 06

Board of Directors 08

Review of Operations 11

Corporate Governance Statement 22

Directors’ Report 24

Financial Report 49

Shareholder Information 103

Financial Calendar and Additional Information 104

01

Q A N T A S A N N U A L R E P O R T 2 0 1 5

CHAIRMAN’S REPORT

Qantas performed strongly in 2014/2015 to achieve its best result since before the Global Financial Crisis, enabling the Group to both strengthen its balance sheet and resume shareholder returns. On behalf of the Board, I would like to thank all Qantas Group employees for their hard work and commitment in turning the business’ performance around and laying the foundations for future growth.

Strong Performance

Alan Joyce and his leadership team deserve great credit for the progress the Group made with its $2 billion Qantas Transformation program in 2014/2015. The program realised $894 million in benefits, ahead of targets.

There were tailwinds in the operating environment – including lower fuel prices and a weaker Australian dollar – which benefitted the Group.

However, it was the implementation of the Group’s strategy that had most bearing on the result. The Group reduced costs, grew revenue and continued to improve the experience for Qantas and Jetstar customers. Each of the Group’s businesses made a good contribution to the overall performance and returned its cost of capital. Operating cash flow in 2014/2015 was a healthy $2 billion.

Proposed Capital Return

Qantas returned to an optimal capital structure in 2014/2015, having reduced debt, increased liquidity and improved Group-wide return on invested capital to 16 per cent.

As a result, the Board has proposed a $505 million capital return to shareholders and related share consolidation, subject to approval by shareholders at the Annual General Meeting in October 2015.

Shareholders have shown patience and loyalty through a period of necessary transformation for Qantas. The Board has been committed to resuming a form of shareholder returns at the appropriate time and we are pleased that the Group’s performance and financial position enable us to do so now.

Board Changes

The renewal of the Qantas Board continued in 2014/2015. We welcomed a new Director in Todd Sampson, one of Australia’s foremost brand and marketing experts, while Garry Hounsell retired after a decade on the Board.

I thank Garry for his outstanding service and wise counsel at an important and challenging time in Qantas’ history.

“The Group reduced costs, grew revenue and continued to improve the experience for Qantas and Jetstar customers.”

LEIGH CLIFFORD AOCHAIRMAN AND INDEPENDENT NON-EXECUTIVE DIRECTOR

02


Australian & Global Outlook

Market conditions globally and in Australia are complex, with steady growth in some regions and a weaker outlook in others.

Australia’s economy continues to transition from the peak of the mining boom, affecting demand in resources-intensive states, while demand is stronger in east coast states and other industry sectors. The Group is managing its assets and capacity in response to this change.

Internationally, the North American and Asia-Pacific markets have strengthened, with growth opportunities for both Qantas and Jetstar. The Group has limited capital invested in Europe but extensive access to European markets through the Emirates partnership. Overall, the Group’s diverse brands, revenue streams and customer base are significant competitive advantages to build on in 2015/2016.

Once again, I pay tribute to the Group’s employees for their contribution to this result and their dedication to building a strong future for Qantas.

August 2015

03


CEO’S REPORT

Qantas’ underlying profit before tax of $975 million was a turnaround of $1.6 billion compared with 2013/2014 – including the best second-half performance in our history. I’m incredibly proud of our people, who have driven the Qantas Transformation program forward with passion, skill and determination. Without their hard work this outstanding result would not have been possible.

Laying Strong Foundations

Since announcing the Qantas Transformation program in December 2013, we have unlocked $1.1 billion in cumulative transformation benefits. These are permanent improvements in our cost base and ability to generate revenue.

We had to make tough decisions as part of what is the biggest and fastest transition in our history. But because we made and implemented those decisions early, we have strong foundations to build on today.

The diversity and quality of the Qantas Group – with Australia’s best airlines and loyalty brands – remains our greatest strategic advantage. What’s different today is that we are smarter and faster in the way we make decisions, foster innovation and serve customers.

Putting Customers First

Customers have always been at the heart of the Group’s strategy. We’ve invested in aircraft, lounges, service innovations and training for our people, who have continued to earn record customer satisfaction.

Today we’re looking to the next frontier of customer service. Speeding up our adoption of new technology is a priority, but what’s truly exciting is the opportunity we have to use the relationships we have with our customers – and the insights they entrust to us – to shape service and create new businesses.

Next Generation Long Haul Fleet

Qantas’ rapid progress with transformation – and the financial discipline we’ve applied – means we can look to the future and a new generation of long-haul aircraft. The announcement that the Boeing 787-9 Dreamliner will join the Qantas International fleet from 2017 is exciting and energising for all of us.

Throughout Qantas’ history, new fleet types have symbolised renewal and ambition – from the Boeing 707 and 747 to the Airbus A380. The iconic Qantas Dreamliner will signify a new era of global opportunities, technology and passenger comfort. And like all Qantas aircraft, it will be a proud emblem of Australia wherever it flies.

“We’ve invested in aircraft, lounges, service innovations, and training for our people, who have continued to earn record customer satisfaction.”

ALAN JOYCECHIEF EXECUTIVE OFFICER

04


A Sustainable Future

The goal of the Qantas Transformation program is to build a strong, sustainable business for the long-term. And today more than ever, sustainability in the broadest sense of the word is central to our strategy, our values and our aspirations for the future. It unites our commitment to safety; to innovation; to service; to social responsibility; and to minimising our environmental footprint. This year’s Annual Review reflects and reports on that commitment to embedding sustainability in everything we do.

In November 2015, Qantas marks 95 years of continuous operations. It’s a privilege to lead this great Australian company and its wonderful people as we shape Qantas’ future in the 21st century.

August 2015

05


A Strong Result

Qantas reported an underlying profit before tax of $975 million and a statutory profit after tax of $560 million for 2014/2015.

The underlying result was a turnaround of $1.6 billion compared with 2013/2014, including Qantas’ best ever second half performance, with all segments of the Qantas Group profitable and returning their cost of capital for the year.

The largest driver of the improved result was progress with the Qantas Transformation program, which unlocked $894 million in transformation benefits during the year and saw Qantas meet its target of paying down more than $1 billion of net debt3. As a result, Qantas has reached its optimal capital structure – enabling it to resume shareholder returns.

Group Performance

All segments of the Qantas Group reported strong profits with record results for Jetstar, Qantas Loyalty and Qantas Freight4 on an underlying earnings before interest and tax (EBIT) basis. Combined Group domestic underlying EBIT – Qantas and Jetstar – was more than $600 million and Qantas International was profitable on a full-year basis for the first time since before the Global Financial Crisis.

Financial Position

The Group’s leverage metrics are now within an investment-grade target range, with debt-to-EBITDA of 2.9x, compared with 5.1x in 2013/2014. The Group retains access to diverse sources of funding and strong liquidity, including $2.9 billion in cash, $1 billion in available undrawn facilities and a pool of unencumbered aircraft totalling more than US$3 billion (at market values).

Proposed Capital Return

A proposed capital return of $505 million, equivalent to 23 cents per share, is proposed to be paid to shareholders in early November 2015. The cash payment is subject to shareholder approval at the Qantas Annual General Meeting on 23 October 2015 of both the capital return and a related share consolidation, which is designed to provide shareholders with an earnings per share outcome similar to an equivalent-sized share buy-back.

FINANCIAL OVERVIEW1

Q ANTAS DOMESTIC

$480mUnderlying EBIT.

Up from $30 million in 2013/2014

Q ANTAS INTERNATIONAL

$267mUnderlying EBIT. Up from

a loss of $497 million in 2013/2014

Q ANTAS LOYALT Y

$315mrecord Underlying EBIT.


JETSTAR GROUP

$230mrecord Underlying EBIT.

Up from a loss of $116 million in

2013/2014

Q ANTAS FREIGHT

$114mrecord Underlying EBIT4.


1 Refer to the Review of Operations section in the Qantas Annual Report 2015 for definition and explanation of non-statutory measures. Unless otherwise stated, amounts are reported on an underlying basis.

2 Underlying Profit Before Tax (PBT) is a non-statutory measure and is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies (being the Chief Executive Officer, Group Management Committee and the Board of Directors) for the purpose of assessing the performance of the Group.

3 $1.1 billion since 2012/2013. Net debt including present value of operating lease obligations.4 Since separate segmentation of Freight result in 2007/2008.

Underlying profit before tax2

$975 MILLION

Statutory profit after tax

$560 MILLION

Return on invested capital

16 PER CENT

Operating cash flow

$2 BILLION

Net free cash flow

$1.1 BILLION

Transformation benefits realised

$894 MILLION

Net debt reduction

$1 BILLION

Statutory earnings per share (EPS)

25.4 CENTS

HIGHLIGHTS

06


The Financial Framework for a Stronger Qantas Group

At the 2015 Qantas Investor Day, we outlined the financial framework that guides the Group’s thinking on shareholder value creation, our optimal capital structure, and capital allocation.

The three pillars of the financial framework are supported by measureable targets, aligned with those of our shareholders. Our overarching objective is

maintainable earnings per share growth over the cycle, to deliver total shareholder returns (TSR) in the top quartile of the ASX100 and a peer group of global listed airlines3.

Maintaining an optimal capital structure, consistent with investment grade-level leverage metrics, will minimise Qantas’ cost of capital. Delivering return on invested capital above our weighted

average cost of capital will ensure we can continue to reinvest in our business for sustainable returns. And by growing the Group’s invested capital over time, and returning surplus capital to shareholders, we will continue to create long-term value for our shareholders.

MAINTAINING AN OPTIMAL CAPITAL

STRUCTURE

ROIC > WACC THROUGH THE CYCLE

DISCIPLINED ALLOCATION OF CAPITAL

Target: minimise WACC Target: ROIC > 10%1Target: grow Invested Capital with disciplined investment,

return surplus capital

2014/2015: >$1 billion debt reduction, return to optimal

capital structure2014/2015: ROIC of 16% 2014/2015: Proposed

$505 million capital return

MAINTAINABLE EPS2 GROWTH OVER THE CYCLE

TOTAL SHAREHOLER RETURNS IN THE TOP QUARTILE3

Financial Framework Aligned with Shareholder ObjectivesEnhancing long-term shareholder value

1 2 3

1 Target of 10% ROIC allows ROIC to be greater than pre-tax WACC through the cycle. 2 Earnings Per Share. 3 Target Total Shareholder Returns with the top quartile of the ASX100 and global listed airline peer group as stated in the 2014/2015 Remuneration Report in reference

to the 2015–2017 LTIP.

07


08


BOARD OF DIRECTORSFOR THE YEAR ENDED 30 JUNE 2015

Leigh Clifford AO

BEng, MEngSciChairman and Independent Non-Executive Director

Leigh Clifford was appointed to the Qantas Board in August 2007 and as Chairman in November 2007.

He is Chair of the Nominations Committee.

Mr Clifford is a Director of Bechtel Group Inc and Chairman of Bechtel Australia Pty Ltd, the Murdoch Childrens Research Institute and the National Gallery of Victoria Foundation. He is a Senior Advisor to Kohlberg Kravis Roberts & Co and a Member of the Council of Trustees of the National Gallery of Victoria. Mr Clifford was previously a Director of Barclays Bank plc and Freeport-McMoRan Inc.

Mr Clifford was Chief Executive of Rio Tinto from 2000 to 2007. He retired from the Board of Rio Tinto in 2007 after serving as a Director of Rio Tinto plc and Rio Tinto Limited for 13 and 12 years respectively. His executive and board career with Rio Tinto spanned some 37 years, in Australia and overseas.

Age: 67

Alan Joyce

BApplSc(Phy)(Math)(Hons), MSc(MgtSc), MA, FRAeS, FTSEChief Executive Officer

Alan Joyce was appointed Chief Executive Officer and Managing Director of Qantas in November 2008.

He is a Member of the Safety, Health, Environment and Security Committee.

Mr Joyce is a Director of the Business Council of Australia and a Member of the International Air Transport Association’s Board of Governors, having served as Chairman from 2012 to 2013. He is also a Director of a number of controlled entities of the Qantas Group.

Mr Joyce was the Chief Executive Officer of Jetstar from 2003 to 2008. Before that, he spent over 15 years in leadership positions with Qantas, Ansett and Aer Lingus. At both Qantas and Ansett, he led the network planning, schedules planning and network strategy functions. Prior to that, Mr Joyce spent eight years at Aer Lingus, where he held roles in sales, marketing, IT, network planning, operations research, revenue management and fleet planning.

Age: 49

Maxine Brenner

BA, LLBIndependent Non-Executive Director

Maxine Brenner was appointed to the Qantas Board in August 2013.

She is a Member of the Remuneration Committee and the Audit Committee.

Ms Brenner is a Director of Origin Energy Limited, Orica Limited and Growthpoint Properties Australia Limited. She is a Trustee of the State Library of NSW and a Member of the Advisory Panel of the Centre for Social Impact at the University of New South Wales.

Ms Brenner was formerly a Managing Director of Investment Banking at Investec Bank (Australia) Limited. She has extensive experience in corporate advisory work, particularly in relation to mergers and acquisitions, corporate restructures and general corporate activity. She also practised as a lawyer with Freehill Hollingdale & Page (now Herbert Smith Freehills) where she specialised in corporate work, and spent several years as a lecturer in the Faculty of Law at both the University of NSW and the University of Sydney.

Ms Brenner was the Deputy Chairman of the Federal Airports Corporation and a Director of Neverfail Springwater Limited, Bulmer Australia Limited and Treasury Corporation of NSW. She also served as a Member of the Australian Government’s Takeovers Panel.

Age: 53

09


Richard Goodmanson

BCom, BEc, MBA, MCEIndependent Non-Executive Director

Richard Goodmanson was appointed to the Qantas Board in June 2008.

He is Chair of the Safety, Health, Environment and Security Committee and a Member of the Nominations Committee.

Mr Goodmanson is a Director of Rio Tinto plc and Rio Tinto Limited.

From 1999 to 2009 he was Executive Vice President and Chief Operating Officer of E.I. du Pont de Nemours and Company. Previous to this role, he was President and Chief Executive Officer of America West Airlines. Mr Goodmanson was also Chief Operations officer for Frito-Lay Inc, a subsidiary of PepsiCo and a Principal at McKinsey & Company Inc. He spent 10 years in heavy civil engineering project management, principally in South East Asia. Additionally, Mr Goodmanson was an Economic Adviser to the Governor of Guangdong Province, China from 2003 until 2009.

Mr Goodmanson was born in Australia and is a citizen of both Australia and the United States.

Age: 68

Jacqueline Hey

BCom, Grad Cert (Mgmt), GAICDIndependent Non-Executive Director

Jacqueline Hey was appointed to the Qantas Board in August 2013.

She is a Member of the Audit Committee.

Ms Hey is a Director of Bendigo and Adelaide Bank Limited and is Chairman of its Change & Technology Committee and a Member of its Audit and Governance and HR Committees. She is also a Director of the Australian Foundation Investment Company Limited, Special Broadcasting Service, Melbourne Business School and Cricket Australia, and a Member of the ASIC Director Advisory Panel.

Ms Hey is the Honorary Consul for Sweden in Victoria.

Between 2004 and 2010, Ms Hey was Managing Director of various Ericsson entities in Australia and New Zealand, the United Kingdom and Ireland, and the Middle East. Her executive career with Ericsson spanned more than 20 years in which she held finance, marketing, sales and leadership roles.

Age: 49

William Meaney

BScMEng, MSIAIndependent Non-Executive Director

William Meaney was appointed to the Qantas Board in February 2012.

He is a Member of the Safety, Health, Environment and Security Committee and the Remuneration Committee.

Mr Meaney is the President and Chief Executive Officer of Iron Mountain Inc. He is a Member of the Asia Business Council and also serves as Trustee of Carnegie Mellon University and Rensselaer Polytechnic Institute.

Mr Meaney was formerly the Chief Executive Officer of The Zuellig Group and a Director of moksha8 Pharmaceuticals Inc. He was also the Managing Director and Chief Commercial Officer of Swiss International Airlines and Executive Vice President of South African Airways responsible for sales, alliances and network management.

Prior to these roles, Mr Meaney spent 11 years providing strategic advisory services at Genhro Management Consultancy as the Founder and Managing Director, and as a Principal with Strategic Planning Associates. Mr Meaney holds United States, Swiss and Irish citizenships.

Age: 55

10


BOARD OF DIRECTORS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015

Paul Rayner

BEc, MAdmin, FAICDIndependent Non-Executive Director

Paul Rayner was appointed to the Qantas Board in July 2008.

He is Chair of the Remuneration Committee and a Member of the Nominations Committee.

Mr Rayner is Chairman of Treasury Wine Estates Limited, a Director of Boral Limited and Chairman of its Audit Committee, and a Director of the Murdoch Childrens Research Institute.

Mr Rayner was formerly a Director of Centrica plc from 2004 to 2014 and Chairman of its Audit Committee from 2004 to 2013. From 2002 to 2008, Mr Rayner was Finance Director of British American Tobacco plc based in London. Mr Rayner joined Rothmans Holdings Limited in 1991 as its Chief Financial Officer and held other senior executive positions within the Group, including Chief Operating Officer of British American Tobacco Australasia Limited from 1999 to 2001.

Previously, Mr Rayner worked for 17 years in various finance and project roles with General Electric, Rank Industries and the Elders IXL Group.

Age: 61

Todd Sampson

MBA, BA(Hons)Independent Non-Executive Director

Todd Sampson was appointed to the Qantas Board in February 2015.

He is a Member of the Remuneration Committee.

He has been the National CEO of the Leo Burnett Group since 2008 and also sits on the board of Fairfax Media Limited.

Mr Sampson has close to 20 years’ experience across marketing, communication, new media and digital transformation. He has held senior leadership and strategy roles for a number of leading communication companies in Australia and overseas, including as Managing Partner for D’Arcy, Strategy Director for The Campaign Palace and Head of Strategy for DDB Needham Worldwide.

Age: 45

Barbara Ward AM

BEc, MPolEcIndependent Non-Executive Director

Barbara Ward was appointed to the Qantas Board in June 2008.

She is Chair of the Audit Committee, a Member of the Safety, Health, Environment and Security Committee and a Member of the Nominations Committee.

Ms Ward is a Director of Caltex Australia Limited, a number of Brookfield Multiplex Group companies, and the Sydney Children’s Hospital Foundation.

She was formerly a Director of the Commonwealth Bank of Australia, Lion Nathan Limited, Brookfield Multiplex Limited, Data Advantage Limited, O’Connell Street Associates Pty Ltd, Allco Finance Group Limited, Rail Infrastructure Corporation, Delta Electricity, Ausgrid, Endeavour Energy and Essential Energy. She was also Chairman of Country Energy and NorthPower and HWW Limited, a Board Member of Allens Arthur Robinson and the Sydney Opera House Trust and on the Advisory Board of LEK Consulting.

Ms Ward was Chief Executive Officer of Ansett Worldwide Aviation Services from 1993 to 1998. Before that, Ms Ward held various positions at TNT Limited, including General Manager Finance, and also served as a Senior Ministerial Advisor to The Hon PJ Keating.

Age: 61

11


REVIEW OF OPERATIONSFOR THE YEAR ENDED 30 JUNE 2015

The Qantas Group reported an Underlying Profit Before Tax1 of $975 million for the 12 months ended 30 June 2015, an improvement of over $1.6 billion from 2013/2014. The Group’s Statutory Profit After Tax of $560 million included $186 million of costs which were not included in Underlying PBT1 primarily driven by redundancies, restructuring and other costs associated with the Qantas Transformation program.

The Underlying PBT result is a strong turnaround from the 2013/2014 financial year, driven by cost and revenue benefits2 from the Qantas Transformation program and a more favourable operating environment. Qantas continued to deliver on all of its major strategic and operational commitments over the 2014/2015 financial year, resulting in the rapid recovery in earnings and return to a strong balance sheet position.

The Qantas Transformation program was the major driver of the result delivering benefits of $894 million. Other drivers of the result included:

– Improved Revenue per ASK3 – Reduced fuel cost, benefiting from lower AUD fuel prices – The positive impact of reduced depreciation expense resulting from the non-cash write down of Qantas International Fleet in 2013/2014 and the removal of the carbon tax

Qantas takes a disciplined approach to continually reviewing its optimal capital structure and, where there is surplus capital, to assess how to enhance shareholder value with the appropriate mix of growth and shareholder returns. Having returned to our optimal capital structure as at the end of 2014/2015, a $505 million capital return was declared.

The shareholder distribution is in the form of 23 cents per share capital return combined with a share consolidation. Subject to shareholder approval of the capital return of $505 million at Qantas’ Annual General Meeting in October 2015, the 23 cents per share payment will be made in November 2015.

Strategic highlights of the 2014/2015 financial year included: – Qantas Transformation continuing to drive permanent shift in cost base and competitive position – Disciplined capital allocation facilitated debt reduction and recommencement of shareholder returns – Investment in product and innovation strengthened the Group’s leading market positions – Focus on engaging our people and improving workplace culture – Management of external volatility with robust hedging program, capacity and capital expenditure flexibility

All operating segments achieved Return on Invested Capital (ROIC)4 greater than the Group’s Weighted Average Cost of Capital (WACC), contributing to Group ROIC of 16 per cent.

Qantas International Underlying EBIT1 of $267 million was a $764 million improvement from the prior year, driven by $408 million of Transformation benefits realised in the year. Jetstar Group, Qantas Loyalty5 and Qantas Freight all achieved record Underlying EBIT, while the combined Qantas Domestic and Qantas International Underlying EBIT result was the highest since financial year 2007/2008.

The $894 million of Qantas Transformation benefits realised during 2014/2015 was ahead of guidance of at least $675 million, with all planned initiatives being delivered on or ahead of schedule. Transformation benefits included $576 million of non-fuel expenditure reduction, $136 million from fuel efficiency6, and revenue benefits2 of $182 million from initiatives including increased utilisation7 of international and domestic aircraft. Qantas transformation continues to drive a sustainable improvement in earnings.

1 Underlying Profit Before Tax (Underlying PBT) is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. The primary reporting measure of the Qantas International, Qantas Domestic, Jetstar Group, Qantas Loyalty and Qantas Freight operating segments is Underlying Earnings Before Net Finance Costs and Tax (Underlying EBIT). The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally. Refer to the reconciliation of Underlying PBT to Statutory Profit/(Loss) Before Tax

2 Any incremental costs associated with revenue benefits are netted in the overall cost benefits attributed to the Qantas Transformation program3 Passenger Revenue per Available Seat Kilometre4 Return on Invested Capital (ROIC) is a non-statutory measure and is the financial return measure of the Group. ROIC is calculated as Return on Invested Capital EBIT (ROIC EBIT) divided

by Average Invested Capital. ROIC EBIT is derived by adjusting Underlying EBIT to exclude non-cancellable aircraft operating lease rentals and include notional depreciation for these aircraft to account for them as if they were owned aircraft. Invested Capital includes the net assets of the business other than cash, debt, other financial assets and liabilities, tax balances and includes the capitalised value of operating leased aircraft assets. Average Invested Capital is equal to the 12 month average of the monthly Invested Capital

5 Qantas Loyalty record Underlying EBIT result compared to prior periods normalised for changes in accounting estimates of the fair value of points and breakage expectations effective 1 January 2009.

6 Fuel efficiency includes reduction in consumption from fuel efficiency and reduction in into-plane costs following transformation initiatives7 Aircraft utilisation is based on average block hours per aircraft

12


REVIEW OF OPERATIONS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015

Qantas has established a financial framework to align our objectives with our shareholders. With the aim of generating maintainable Earnings Per Share growth over the cycle, which in turn should translate into Total Shareholder Returns in the top quartile of the ASX100 and a basket of global airlines8, the financial framework has three clear priorities and associated long-term targets:

Priorities and long-term targets Delivery against priorities and long-term targets

Maintain an optimal capital structure, with a target to minimise WACC

Qantas returned to its optimal capital structure after completing net debt9 reduction of $1.1 billion since the 2012/2013 financial year. With the concurrent increase in earnings, leverage metrics are within the targeted BBB- to BBB range. Total liquidity10 increased, including $2.9 billion in cash, $1 billion in undrawn revolving credit facilities and a net increase of 20 unencumbered aircraft to total market value over US$3 billion.

Deliver ROIC greater than WACC11 through the cycle, ensured by a target of ROIC > 10 per cent

Return on Invested Capital of 16 percent. The Group ROIC outcome was consistent with the Group’s target to deliver ROIC above 10 per cent through the cycle.

Disciplined allocation of capital, with the aim of growing Invested Capital with disciplined investment

Qantas continued to demonstrate disciplined allocation of capital over 2014/2015, with constrained net capital expenditure12 of $944 million facilitating $1.1 billion net debt reduction since 2012/2013 and the return of $505 million surplus capital to shareholders. Despite the constrained level of capital expenditure, targeted investment across the Group in product, service and training resulted in customer satisfaction and advocacy, measured by Net Promoter Scores, improving to record levels.

The Group’s balanced scorecard through the Qantas Transformation program ensures a net benefit for the customer experience. This was seen in customer and brand highlights for the year including:

– Record13 customer advocacy (NPS) results at Qantas Domestic and Qantas International – The opening of new First and Business lounges in Los Angeles – Commencement of the A330 reconfiguration program, progressively adding ‘Business Suites’ with lie-flat beds on 28 A330 family aircraft

– B787 aircraft with enhanced customer offering in the Jetstar International fleet with two further aircraft already delivered since 30 June 2015

– Ongoing customer service training programs completed by more than 10,000 staff – Digital innovation focused on improving speed and ease of travel including auto check-in on mobile for Qantas Domestic and next-gen online retailing and boarding at Jetstar

UNDERLYING PBT

The Qantas Group’s full-year 2014/2015 Underlying PBT increased to $975 million, compared to an Underlying Loss Before Tax of $646 million in 2013/2014. The significant improvement in earnings was driven by the delivery of a reduction in operating expenses, fuel efficiency initiatives, and revenue benefits from the $2 billion Qantas Transformation program14.

Net passenger revenue increased by three per cent, reflecting improved yields15 and passenger loads in most markets. This stronger performance was supported by network changes and capacity management in a mixed domestic market, as well as a more benign international competitive environment with the lower Australian dollar resulting in a steep reduction in the pace of international competitor capacity growth. The fuel cost reduction of $597 million resulted from lower AUD fuel prices and fuel efficiency measures in the Qantas Transformation program.

Depreciation and amortisation expenses were lower with $195 million of the reduction resulting from the non-cash impairment to the Qantas International fleet taken in the 2013/2014 full year results. The remaining reduction is the net impact from aircraft retirements offset by deliveries. Net finance costs increased by $52 million largely due to reduced capitalised interest and an increase in the average cost of new debt and the significant extension of the Group’s debt maturity profile.

8 Compared to global airline peer group as stated in the Notice of Meeting for the 2014 Annual General Meeting, with reference to the 2015-2017 LTIP. 9 Net debt including present value of operating lease liabilities. The present value of operating lease liabilities for aircraft operating leases in accordance with AASB 117: Leases, are

not recognised on balance sheet. The operating lease liability has been calculated as the present value of future non-cancellable operating lease rentals of aircraft in service, using a discount rate of seven per cent applied in Standard and Poor’s methodology

10 Includes cash and cash equivalents and $1 billion in undrawn facilities as at 7 July 201511 Calculated on a pre-tax basis12 Net capital expenditure represents investing cash flows13 Net Promoter Score (record achieved in June 2015)14 $2 billion of gross benefits excluding inflation15 Yield – passenger revenue divided by RPKs (both current year and prior year have been calculated using current foreign exchange rates)

13


Group Underlying Income Statement Summary

June 2015

$M

June 2014

$MChange

$MChange

%

Net passenger revenue 13,667 13,242 425 3

Net freight revenue 936 955 (19) (2)

Other revenue 1,213 1,155 58 5

Revenue 15,816 15,352 464 3

Operating expenses (excluding fuel)16 (9,064) (9,288) 224 2

Fuel16 (3,899) (4,496) 597 13

Depreciation and amortisation (1,096) (1,422) 326 23

Non-cancellable aircraft operating lease rentals (495) (520) 25 5

Share of net loss of investments accounted for under the equity method16 (29) (66) 37 56

Expenses (14,583) (15,792) 1,209 8

Underlying EBIT 1,233 (440) 1,673 >100

Net finance costs16 (258) (206) (52) (25)

Underlying PBT 975 (646) 1,621 >100

Operating StatisticsJune 2015

June 2014 Change

Change %

Available Seat Kilometres (ASK)17 M 142,287 141,715 572 0.4

Revenue Passenger Kilometres (RPK)18 M 112,543 109,659 2,884 2.6

Passengers Carried ‘000 49,181 48,776 405 0.8

Revenue Seat Factor 19 % 79.1 77.4 1.7pts

Yield15 c/RPK 10.40 10.29 0.11 1.1

Comparable unit cost20 c/ASK 4.79 5.05 (0.26) (5.1)

Group capacity (Available Seat Kilometres) increased by 0.4 per cent, and demand (Revenue Passenger Kilometres) increased by 2.6 per cent, resulting in a 1.7 percentage point increase in Revenue Seat Factor.

Yield from ticketed passenger revenue increased 1.1 per cent on a constant currency basis, and the Group’s comparable unit cost improved by 5.1 per cent.

16 Underlying operating expenses (excluding fuel) – total Underlying expenses excluding share of net loss of investments accounted for under the equity method, fuel and net finance costs. These Underlying expenses differ from equivalent statutory expenses due to items excluded from Underlying PBT, such as adjustments for impacts of AASB 9 which relate to other reporting periods and other items identified by Management. Refer to the reconciliation of Underlying PBT to Statutory (Loss)/Profit Before Tax

17 ASK – total number of seats available for passengers, multiplied by the number of kilometres flown18 RPK – total number of passengers carried, multiplied by the number of kilometres flown19 Revenue Seat Factor – RPKs divided by ASKs. Also known as seat factor, load factor or load20 Comparable unit cost – unit cost is adjusted to aid comparability between reporting periods. Comparable unit cost is calculated as Underlying PBT less passenger revenue and fuel,

adjusted for the impact of the Qantas International fleet write-down, changes in discount rates, changes in foreign exchange rates, share of net loss of investments accounted for under the equity method. If adjusted for movements in average sector length per ASK comparable unit cost improvement is 4.2 per cent and if adjusted further for the impact of the carbon tax repeal, the comparable unit cost improvement is 2.6 per cent.

14


Segment Performance Summary

June 2015

$M

June 2014

$MChange

$MChange

%

Qantas Domestic 480 30 450 >100

Qantas International 267 (497) 764 >100

Qantas Freight 114 24 90 >100

Jetstar Group 230 (116) 346 >100

Qantas Loyalty 315 286 29 10

Corporate (163) (163) – –

Unallocated/Eliminations (10) (4) (6) >(100)

Underlying EBIT1 1,233 (440) 1,673 >100

Net finance costs (258) (206) (52) (25)

Underlying PBT1 975 (646) 1,621 >100

Qantas Domestic reported 2014/2015 Underlying EBIT of $480 million, a $450 million improvement from the prior year. The main driver of the improved performance was realisation of $302 million of Transformation benefits.

Qantas International reported a $764 million turnaround from 2013/2014, a major milestone that met the Group’s target for the segment to return to profitability in 2014/2015. This major milestone was the result of several years of significant restructuring initiatives, and included $408 million of Transformation benefits realised in 2014/2015. The segment result benefited from a $195 million reduction in depreciation from the non-cash impairment to the Qantas International fleet taken in the 2013/2014 full year results.

Jetstar Group recognised a record Underlying EBIT of $230 million, compared to an Underlying EBIT loss of $116 million in the prior year. This reflected significant improvement across the Jetstar Group, with continued cost transformation and revenue recovery.

Qantas Loyalty Underlying EBIT increased 10 per cent to a record $315 million, driven by a five per cent increase in billings21 and the growth of new and adjacent business ventures including Qantas Cash, Aquire, Accumulate and Red Planet.

Qantas Freight reported record Underlying EBIT of $114 million, with Transformation benefits of $38 million and yield22 reductions offset by higher loads.

DISCIPLINED INVESTMENT TO ENHANCE LONG-TERM SHAREHOLDER VALUE

With the Group having returned to its optimal capital structure, and no further net debt reduction required, disciplined investment will grow Invested Capital over time and maximise long-term shareholder value by:

– Building on the Group’s competitive advantages• Integrated portfolio of premier brands• Superior domestic market position• Improving customer experience • Leveraging customer insights

– Positioning the Group to succeed in future growth markets• Loyalty growth initiatives• Jetstar in Asia

– Strengthening long-term Group ROIC• Next-generation fleet• Transformation

– Aligning with our brand values and vision


21 Billings represent point sales to partners 22 Yield is calculated as freight revenue excluding foreign exchange divided by revenue freight tonne kilometres (RFTKs)

15


QANTAS TRANSFORMATION – DELIVERING AGAINST A BALANCED SCORECARD

The accelerated Qantas Transformation program is targeting the delivery of $2 billion of gross benefits by the end of financial year 2016/2017, with all milestones to date having been met or exceeded. Within the $2 billion target, the program is sized and structured to achieve important strategic outcomes.

Strategic outcomes by 2016/2017 include: – Group ex-fuel expenditure reduced by > 10 per cent23

– Qantas Domestic unit cost gap24 to competitor to close to < five per cent – Qantas International unit cost comparable to direct competitors – Jetstar lowest seat cost and yield advantage maintained – Consistent and improved customer experience – Embedded culture of transformation for ongoing benefits beyond 2016/2017

The target metrics and achievements to date as at 2014/2015 include:

Achieving Our Targets Target Metric Achievements to Date

Accelerated transformation benefits $2 billion gross benefits

Group ex-fuel expenditure reduced by > 10 per cent25

5,000 FTE reduction

$1.1 billion cost and revenue benefits realised

Ex-fuel expenditure26 reduced by six per cent

Reduction of 4,00027 full time equivalent staff out of targeted 5,000 reduction by 2016/2017

De-leverage balance sheet Greater than $1 billion debt reduction $1.1 billion of net debt reduction since financial year 2012/2013

Debt/EBITDA <4 times Debt / adjusted EBITDA28 of 2.9 times, meeting leverage target of Debt / adjusted EBITDA < 4 times two years ahead of schedule

Cash flow Sustainable positive free cash flow $1.1 billion net free cash flow in FY15

Fleet simplification 11 fleet types to seven Group fleet types (excluding regional operations) reduced from 11 to nine with the exit of B734 and B767. In addition, four out of six non-reconfigured B747 aircraft retired29

Customer and brand Customer satisfaction (six month rolling average)

Most on-time domestic carrier: Qantas Domestic

Customer satisfaction at record levels and improving

Most on-time domestic departures and arrivals in 2014/201530

With $1.1 billion of benefits having been realised to date, the Group expects to realise Qantas Transformation benefits of $450 million in 2015/2016.

The Group-wide policy of implementing an 18-month wages freeze, whilst not part of the $2 billion Qantas Transformation Program, is helping to offset inflation and build a more competitive and sustainable wages position. Eighteen agreements have been closed with the wages freeze, with all of the major unions representing employee groups having signed up to the policy in at least one agreement.

In July 2015, Qantas announced that employees covered by the wages freeze policy will receive a one-off bonus payment worth five per cent of base annual salary.

23 Target assumes steady foreign exchange rates, capacity and sector length 24 Unit cost is calculated as Underlying EBIT less passenger revenue per ASK. Qantas Domestic unit cost includes QantasLink. Competitor refers to Virgin Australia including mainline

domestic and regional operations. Virgin’s assumed domestic unit cost is based on Qantas’ internal estimates and published competitor data25 Compared to first-half ended 31 December 2013, annualised and assuming steady foreign exchange rates, capacity and sector length26 Includes Underlying operating expenses (including fuel), depreciation and amortisation (excluding depreciation reduction from Qantas International non-cash fleet impairment) and

non-cancellable operating lease rentals27 Exited FTEs as at 30 June 201528 Metric calculated based on Moody’s methodology29 From December 2013 to August 201530 Qantas mainline compared with Virgin mainline. Source: BITRE

16


RAPIDLY IMPROVED CASH GENERATION

Cash Flow Summary

June 2015

$M

June 2014

$MChange

$MChange

%

Operating cash flows 2,048 1,069 979 92

Investing cash flows (944) (1,069) 125 12

Net free cash flow31 1,104 – 1,104 >100

Financing cash flows (1,218) 173 (1,391) >(100)

Cash at beginning of period 3,001 2,829 172 6

Effect of foreign exchange on cash 21 (1) 22 >100

Cash at period end 2,908 3,001 (93) (3)

Debt Analysis

June 2015

$M

June 2014

$MChange

$MChange

%

Net on balance sheet debt32 2,558 3,455 (897) (26)

Net debt including present value of operating lease liabilities9 3,742 4,751 (1,009) (21)

Net debt including capitalised operating lease liabilities33 6,306 7,343 (1,037) (14)

FFO/net debt34 % 46% 17%

Debt/adjusted EBITDA28 times 2.9 5.1

Operating cash flows of $2 billion almost doubled from the prior year, reflecting benefits realised through Qantas Transformation, yield improvements across the Group in a more stable operating environment, and lower AUD fuel prices in the second half of the financial year in particular.

Net cash capital expenditure12 of $944 million included investment in replacement fleet such as the Boeing 787 for Jetstar International and customer experience initiatives including airport lounges and the commencement of Airbus A330 cabin reconfigurations. Qantas generated $1.1 billion of net free cash flow in the period – a rapid improvement from the neutral net free cash flow outcome in 2013/2014 – facilitating the completion of the Group’s targeted net debt reduction of at least $1 billion.

The Group’s liquidity position strengthened, with $2.9 billion in cash, a $410 million increase35 in available undrawn facilities to $1 billion, and the pool of unencumbered aircraft growing to a total of more than US$3 billion (at market value). Qantas continues to retain significant flexibility in its financial position, funding strategies and fleet plan to ensure that it can respond to any change in market conditions.

As a result of improved earnings through the achievement of milestones under the Qantas Transformation program, the Group is now within the target optimal capital structure range. At 30 June 2015, the Group’s leverage metrics were within or better than investment grade (BBB/Baa range) with FFO/net debt of 46 per cent (2013/2014: 17 per cent) and Debt/adjusted EBITDA of 2.9 times (2013/2014: 5.1 times).


31 Net free cash flow – operating cash flows less investing cash flows. Net free cash flow is a measure of the amount of operating cash flows that are available (i.e. after investing activities) to fund reductions in net debt or payments to shareholders

32 Net on balance sheet debt includes interest-bearing liabilities and the fair value of hedges related to debt reduced by cash and cash equivalents and aircraft security deposits33 Net debt including operating lease liability under the Group’s Financial Framework includes net on balance sheet debt and off balance sheet aircraft operating lease liabilities.

Capitalised operating lease liability is measured at fair value at the lease commencement date and remeasured over lease term on a principal and interest basis akin to a finance lease34 Funds From Operations (FFO) to net debt based on Standard and Poor’s methodology 35 From 30 June 2014 to 7 July 2015

17


FLEET

The Qantas Group remains committed to a fleet strategy that provides for long-term flexibility and renewal, and that prioritises Group fleet simplification. The fleet strategy is designed to support the strategic objectives of the Group’s two flying brands and the overarching targets of the Qantas Transformation program. At all times, the Group retains significant flexibility to respond to any changes in market conditions and the competitive environment.

At 30 June 2015, the Qantas Group fleet36 totalled 299 aircraft. During 2014/2015, the Group purchased 11 aircraft and leased one aircraft:

– Qantas – five B737–800s, one Bombardier Q400 and one Fokker100 – Jetstar (including Jetstar Asia) – four B787–8s and one A320–200

The Group removed 21 aircraft from service in 2014/2015 including three lease returns. These included 13 B767–300s, one B747–400, three A320–200s, one Q300 and three EMB120s.

The Qantas Group’s scheduled passenger fleet average age is now 7.7 years37, below the targeted 8–10 year range. The benefits of fleet investment include improved customer satisfaction, environmental outcomes, operational efficiencies and cost reductions.

QANTAS DOMESTICJune 2015

June 2014

Change Change %

Total Revenue and Other Income $M 5,828 5,848 (20) (0.3)

Revenue Seat Factor % 74.2 73.3 0.9 pts

Underlying EBIT $M 480 30 450 >100

Qantas Domestic reported a robust Underlying EBIT of $480 million, an improvement of $450 million on the prior year. The result was driven by $302 million of Transformation benefits. Revenue per ASK38 increased 4.5 per cent, offsetting a decline in third party revenue following the sale of Qantas Defence Services in February 2014. The revenue per ASK was driven by yield and load improvements in a stabilised domestic market. Comparable unit cost39 for the full year decreased by four per cent with three per cent lower capacity compared to 2013/2014.

Network changes and dynamic capacity management supported yield gains in a mixed demand environment. New services and frequencies were added on East Coast leisure markets, while Qantas Domestic continued to right-size its intra-Western Australia and Queensland footprint in response to ongoing demand weakness from the resources sector. Better matching of capacity to demand on thin domestic routes, such as Hobart and Canberra, has also delivered improved revenue per ASK and restored profitability on these markets.

With mainline fleet simplification complete, Qantas Domestic now operates one common narrowbody aircraft type (B738) and one widebody type (A330–200). Focus continues on network optimisation and increased utilisation to generate a stronger return from Invested Capital. The introduction of reduced turn times for the B738 fleet resulted in improved utilisation in the second half of 2014/2015.

Qantas Domestic increased on-time performance over the year to 88.3 per cent with the best on-time performance40 result in over ten years. With ongoing investment in the customer experience and service training for our people, customer advocacy measured by Net Promoter Score increased to a record41 in 2014/2015.

36 Includes Jetstar Asia, Qantas Freight and Network Aviation and excludes aircraft owned by Jetstar Japan, Jetstar Hong Kong and Jetstar Pacific 37 Based on Group’s scheduled passenger fleet, excluding Freighter aircraft and Network Aviation38 Calculated as passenger revenue per ASK39 Comparable unit cost is calculated as Underlying EBIT less passenger revenue and fuel adjusted for changes in discount rates, foreign exchange rates and movements in average sector

lengths per ASK. If adjusted for the impact of the carbon tax repeal, comparable unit cost improved one per cent.40 On-time performance for Qantas mainline. Source: BITRE41 Net promoter score, based on internal Qantas reporting (record achieved in June 2015)

18


QANTAS INTERNATIONALJune 2015

June 2014

Change Change %

Total Revenue and Other Income42 $M 5,467 5,297 170 3

Revenue Seat Factor % 81.5 79.6 1.9 pts

Underlying EBIT $M 267 (497) 764 >100

Qantas International saw a major improvement in recent periods with a $764 million turnaround in Underlying EBIT to $267 million in 2014/2015. The impressive result was led by the delivery of $408 million of cost and revenue benefits from the Qantas Transformation program. Revenue increased three per cent on flat capacity, with a 1.9 percentage point improvement in Revenue Seat Factor, reflecting stronger passenger loads on most routes. Revenue per ASK43 increased by six per cent. The segment result included a $195 million reduction in depreciation expense from the non-cash fleet impairment to the Qantas International fleet taken in the 2013/2014 financial results.

Reflecting benefits from Qantas Transformation, comparable unit cost44 improved by four per cent in the year while aircraft utilisation also improved by four per cent. Since 2011/2012, when the three-year turnaround plan for Qantas International began, aircraft utilisation has increased by 15 per cent. One utilisation initiative in 2014/2015 involved the re-time of the Melbourne-London service and the introduction of improved turnaround times for the A380, which combined, allowed one A380 hull to be released and deployed on the Sydney-Dallas route. 2014/2015 also saw an increase in weekly services to Los Angeles and Santiago, the introduction of seasonal flying to Vancouver, and the announcement that Perth-Singapore services would resume in early 2015/2016.

Qantas International has clear strategic priorities: reshaping our cost base through Transformation; owning the high-yield customer in Australia; overcoming network gaps; and providing connections to the world. An enhanced partnership with American Airlines45 will facilitate closer commercial ties and growth between Australia and the US. Expanded alliances and code share relationships with Westjet, Bangkok Airways and China Airlines all help improve network connectivity. Qantas International began the roll out of reconfigured A330 aircraft on medium haul routes to Asia, including new ‘Business Suites’ with lie-flat beds. Average NPS improved to a record41 level over the 12 months through targeted investment in lounges including Los Angeles Business and First in 2014/2015, in-flight dining upgrades, and ongoing service training for our people.

JETSTAR GROUPJune 2015

June 2014

Change Change %

Total Revenue and Other Income $M 3,464 3,222 242 8

Revenue Seat Factor % 79.9 77.9 2 pts

Underlying EBIT $M 230 (116) 346 >100

Jetstar Group reported record Underlying EBIT of $230 million, a strong turnaround from a $116 million Underlying EBIT loss in the prior year. The record performance reflected significant improvement across the Jetstar Group, with a continued focus on cost transformation and revenue recovery. Controllable unit cost46 improved by two per cent47, while total revenue and other income rose eight per cent reflecting higher yields and passenger loads as well as growth in ancillary revenue.

In domestic Australia, Jetstar benefits from closer dual-brand coordination with Qantas Domestic in stabilised market conditions. Jetstar International delivered a record performance helped by the customer appeal and unit cost benefits of introducing the B787 on long haul international routes. Domestic New Zealand was profitable for Jetstar for the first time with ongoing RASK improvement over the year.

All Jetstar Group airlines in Asia reported an improvement in earnings48, with combined losses halved compared to financial 2013/2014. Jetstar Asia (Singapore) returned to profit, Jetstar Pacific (Vietnam) was profitable in the second half of 2014/2015, and Jetstar Japan reported a significant reduction in losses, with strong revenue per ASK improvement and ongoing controllable unit cost46 reduction. The 2014/2015 financial accounts include a write-off of the Jetstar Hong Kong business of $21 million, following the disappointing outcome of the Hong Kong Air Transport Licensing Authority’s rejection of Jetstar Hong Kong’s licence application. The write-off was recognised outside of Underlying PBT.


42 Revenue includes six per cent passenger revenue per ASK growth and movements in other income including the impact of changes in block codeshare agreements 43 Revenue per ASK calculated as passenger revenue per ASK inclusive of Transformation benefits and foreign exchange movements44 Comparable unit cost is calculated as Underlying EBIT less passenger revenue and fuel adjusted for the impact of the Qantas International fleet write-down, changes in discount rates,

changes in foreign exchange rates, changes in block codeshare agreements and movements in average sector length per ASK45 Subject to regulatory approval46 Controllable unit cost is calculated as Underlying expenses less fuel adjusted for the impact of Jetstar branded associates, changes in foreign exchange rates and movements in average

sector length per ASK 47 If adjusted for the impact of the carbon tax repeal, controllable unit cost improvement is one per cent48 Based on Underlying EBIT

19


Jetstar-branded airlines continue to focus on a differentiated low fares product offering and service standard with innovation and investment in new technology and B787 roll out. Greater self-service, including automated bag drops and kiosk check-in, is improving the customer experience while also delivering cost benefits. Investment in next-generation booking engine and online retailing capabilities will drive the next wave of ancillary revenue growth.

Jetstar was awarded the best low-cost carrier in Australia/Pacific and was in the top five low-cost carriers worldwide49.

QANTAS LOYALTYJune 2015

June 2014

Change Change %

Members M 10.8 10.1 0.7 7

Billings21 $M 1,369 1,306 63 5

Underlying EBIT $M 315 286 29 10

Qantas Loyalty reported record50 Underlying EBIT of $315 million, up 10 per cent. Billings growth of five per cent reflects strong underlying system growth, tactical campaigns with existing partners and the addition of new partners to both the Qantas Frequent Flyer and Aquire programs. Qantas Frequent Flyer direct earn credit cards have continued to show strength, with five per cent acquisition growth51 outperforming the industry average. Qantas Frequent Flyer reached the milestone of 10.8 million members – a seven per cent increase.

Qantas Loyalty has continued to innovate and diversify its earnings base during the period, investing in its adjacent businesses52 and reinforcing the core coalition program. These adjacent businesses have accounted for 30 per cent of the overall Underlying EBIT growth in the year.

Highlights include: – $1.1 billion currency loaded on Qantas Cash cards, with 410,000 cards activated – A 57 per cent increase in Qantas epiQure member base driving a 43 per cent growth in wine sales – Red Planet launch and delivering profits within first year, growing its external client portfolio and delivering top line value to the airline – Growth of the Aquire loyalty program for small to medium-sized businesses

During 2014/2015 Qantas Loyalty purchased a controlling stake in actuarial and data analytics consulting firm Taylor Fry, an acquisition that adds to the Group’s customer insights capability and provides a new adjacent revenue stream.

The Qantas Frequent Flyer program maintained a record annual NPS53 and continues to hold a premium over competitor programs.

QANTAS FREIGHTJune 2015

June 2014

Change Change %

Total Revenue and Other Income $M 1,067 1,084 (17) (2)

Load Factor (International)54 % 57.0 55.1 1.9 pts 3

Underlying EBIT $M 114 24 90 >100

Qantas Freight also reported a record55 result in 2014/2015, with Underlying EBIT rising almost fivefold to $114 million from $24 million in 2013/2014. The significantly improved performance was led by the delivery of $38 million of benefits from the Qantas Transformation program, including the introduction of new technology to improve productivity and customer experience, together with strong performance from the International Freighter network. Stronger cargo load factors helped offset yield22 reductions in a very competitive domestic freight market.

49 Skytrax World Airline Awards 201550 Qantas Loyalty record Underlying EBIT result compared to prior periods normalised for changes in accounting estimates of the fair value of points and breakage expectations effective

1 January 200951 Growth 12 months to May 2015 compared to 12 months to May 201452 Includes Qantas Cash, Qantas Golf, Qantas epiQure, Red Planet, Accumulate and Taylor Fry53 Average NPS 12 months to July 2015 compared to average 12 months to July 201454 Load Factor (International) – Revenue Freight Tonne Kilometre (RFTK) over Available Freight Tonne Kilometre (AFTK)55 Since Freight was reported as a separate segment in 2007/2008

20


RECONCILIATION OF UNDERLYING PBT TO STATUTORY PROFIT/(LOSS) BEFORE TAX

The Statutory Profit Before Tax of $789 million for the year ended 30 June 2015 is $4,765 million higher than the prior year.

Underlying PBT

Underlying PBT is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. The primary reporting measure of the Qantas International, Qantas Domestic, Jetstar Group, Qantas Loyalty and Qantas Freight operating segments is Underlying EBIT. The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally.

Underlying PBT is derived by adjusting Statutory Profit/(Loss) Before Tax for the impacts of ineffectiveness and non-designated derivatives relating to other reporting periods and certain other items which are not included in Underlying PBT.

Reconciliation of Underlying PBT to Statutory Profit/(Loss) Before Tax

June 2015

$M

June 2014

$M

Underlying PBT 975 (646)

Ineffectiveness and non-designated derivatives relating to other reporting periods (39) 72

Other items not included in Underlying PBT

– Impairment of Qantas International CGU – (2,560)

– Redundancies, restructuring and other transformation costs (80) (428)

– Fleet restructuring costs56 (4) (394)

– Net impairment of other intangible assets (7) (9)

– Net gain on sale of controlled entity and related assets 11 62

– Net impairment of investments (19) (50)

– B787–8 introduction costs – (14)

– Write-off of Jetstar Hong Kong Business57 (21) –

– Other (27) (9)

Total other items not included in Underlying PBT (147) (3,402)

Statutory Profit/(Loss) Before Tax 789 (3,976)

Ineffectiveness and non-designated derivatives relating to other reporting periods

In prior reporting periods, Underlying PBT was adjusted for the impacts of AASB 139 which relate to other reporting periods. The AASB 139 adjustments to Statutory Profit/(Loss) Before Tax ensured derivative mark-to-market movements that relate to underlying exposures in other reporting periods were recognised in Underlying PBT in those reporting periods.

In the current reporting period, as a result of the early adoption of AASB 9 (2013), there is now better alignment between Underlying PBT and Statutory Profit/(Loss) Before Tax. However, there will continue to be a difference between Statutory Profit/(Loss) Before Tax and Underlying PBT resulting from derivative mark-to-market movements being recognised in the Consolidated Income Statement in a different period to the underlying exposure.


Items which are identified by Management and reported to the chief operating decision-making bodies as not representing the underlying performance of the business are not included in Underlying PBT. The determination of these items is made after consideration of their nature and materiality and is applied consistently from period to period.

Items not included in Underlying PBT primarily result from revenues or expenses relating to business activities in other reporting periods, major transformational/restructuring initiatives, transactions involving investments and impairments of assets and other transactions outside the ordinary course of business.

Redundancy, restructuring and other transformation costs of $80 million were incurred during the period.

A write-off of the Jetstar Hong Kong business of $21 million was recognised as a result of the Hong Kong’s Air Transport Licensing Authority’s rejection of Jetstar Hong Kong’s licence application.


56 Fleet restructuring costs include impairment of aircraft, together with other aircraft associated property, plant and equipment, inventory and other related costs57 The write-off of the Jetstar Hong Kong business includes the impairment of the investment, write-off of deferred costs and the Group’s share of net losses for the year ended 30 June 2015

21


MATERIAL BUSINESS RISKS

The aviation industry is subject to a number of inherent risks. These include, but are not limited to, exposure to changes in economic conditions, changes in government regulations, fuel and foreign exchange volatility and other exogenous events such as aviation incidents, natural disasters, war or an epidemic.

Qantas is subject to a number of specific business risks which may impact the achievement of the Group’s strategy and financial prospects:

– Competitive intensity: Market capacity growth ahead of underlying demand impacts industry profitability.

• Australia’s liberal aviation policy settings coupled with the strength of the Australian economy relative to global economic weakness in recent years has attracted more offshore competitors to the Australian international aviation market, predominantly state-sponsored airlines. Qantas is responding by building key strategic airline partnerships with strong global partners and optimising its network. Qantas brings domestic strength and the unrivalled customer offering of Qantas Loyalty. Qantas International has embarked on a major restructure of its legacy cost issues through the Qantas Transformation program with the objective of achieving a cost base comparable to direct competitors. The operating environment has moderated in 2014/2015 driven by the fall in the AUD against the USD and moderated capacity growth has brought international market capacity growth in line with demand growth. These changes have improved passenger loads and led to a recovery of yields in the international business.

• The Australian domestic aviation market continues to attract increased competition. The Qantas Group’s market-leading domestic position and dual-brand strategy allow Qantas to effectively mitigate the impact of any market changes. This strategy leverages Qantas Domestic (including QantasLink) to serve business and premium leisure customers and Jetstar to serve price-sensitive customers. Qantas Domestic is focused on removing the cost base disadvantage to its competitor through Qantas Transformation initiatives, while Jetstar is working to maintain its low-cost scale advantage and continually lower unit costs. During 2014/2015, the operating environment has stabilised with market capacity moderation supporting stronger passenger loads and early yield recovery in the domestic business.

– Fuel and foreign exchange volatility: The Qantas Group is subject to fuel and foreign exchange risks. These risks are an inherent part of the operations of an airline. The Qantas Group manages these risks through a comprehensive hedging program. For 2015/2016 the Group’s hedging profile is positioned such that the worst case total fuel cost is $3.94 billion with 73 per cent participation rate in lower fuel prices (at current forward market price total fuel cost for 2015/2016 is $3.64 billion)58

– Industrial relations: The associated risks of transformation including industrial action relating to Qantas’ collective agreements with its employees. The risk is being mitigated through continuous employee engagement initiatives and ongoing, constructive dialogue with all union groups and other relevant stakeholders. The Group has successfully closed a number of Enterprise Bargaining Agreements (EBAs) subsequent to the commencement of the Qantas Transformation program. These EBAs have included an 18-month wage freeze. As a result of the improved profitability of the Group, and in recognition of the contribution made by all employees to strengthen the Group’s long-term competitive position through the wage freeze and the delivery of all Qantas Transformation targets ahead of schedule, a one-off bonus payment will be made to all employees covered by an 18-month wage freeze.

– Continuity of critical systems: The Group’s operations depend on the continuity of a number of information technology and communication services. The Group has an extensive control and Group Risk Management Framework59 to reduce the likelihood of outages, ensure early detection and to mitigate the impact.

– Credit rating: Qantas’ credit rating is Ba1 positive outlook by Moody’s and BB+ stable by Standard and Poor’s. Compared to an investment grade credit rating, the price of new debt funding may increase and/or the Group’s access to some sources of unsecured credit could reduce over time. Qantas targets an optimal capital structure range that is commensurate with investment grade credit metrics. The Group maintains strong liquidity options supported by a flexible fleet plan which allows the Group to reduce capital expenditure and/or reduce debt to achieve credit metrics in-line with a BBB/BBB- rating (investment grade). As a result of improved earnings through the achievement of milestones under the Qantas Transformation program, the Group is now within the target optimal capital structure range. At 30 June 2015, the Group’s leverage metrics were within or better than investment grade (BBB/Baa range) with FFO/net debt of 46 per cent (2013/2014: 17 per cent) and Debt/adjusted EBITDA of 2.9 times (2013/2014: 5.1 times).

– Key business partners: The Qantas Group has relationships with a number of key business partners. Any potential exposures as a result of these partnerships are mitigated through the Group Risk Management Framework.

58 As at 18 August 201559 An overview of the Group Risk Management Framework is available through the Qantas Group Business Practices Document on www.qantas.com.au

22


OVERVIEW

Corporate governance is core to ensuring the creation, protection and enhancement of shareholder value. The Board maintains, and requires that Qantas Management maintains, the highest level of corporate ethics.

The Board comprises a majority of Independent Non-Executive Directors who, together with the Executive Director, have an appropriate balance of skills, knowledge, experience, independence and diversity to enable the Board as a collective to effectively discharge its responsibilities.

The Board endorses the ASX Corporate Governance Principles and Recommendations, 3rd Edition (ASX Principles).

Accordingly, Qantas has taken the opportunity to disclose its 2015 Corporate Governance Statement in the Corporate Governance section on the Qantas website (www.qantas.com). As required, Qantas has also lodged the Corporate Governance Statement with the ASX.

Following is a summary of the key aspects of the Corporate Governance Statement.

THE BOARD LAYS SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

The Board has adopted a formal Charter which is available in the Corporate Governance section on the Qantas website (www.qantas.com).

The Board is responsible for setting and reviewing the strategic direction of Qantas and monitoring the implementation of that strategy by Management.

The CEO is responsible for the day-to-day management of the Qantas Group with all powers, discretions and delegations authorised, from time to time, by the Board.

The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board.

THE BOARD IS STRUCTURED TO ADD VALUE

The Qantas Board currently has nine Directors. Eight Directors are Independent Non-Executive Directors elected by shareholders. The Qantas CEO, who is an Executive Director, is not regarded as independent.

Details of the current Directors, their qualifications, skills, experience and tenure are set out on pages 8 to 10 of the 2015 Annual Report.

The Board has four Committees: – Audit Committee – Nominations Committee – Remuneration Committee – Safety, Health, Environment and Security Committee

Each of these committees assists the Board with specified responsibilities that are set out in Committee Charters, as delegated and approved by the Board.

Membership of and attendance at 2014/2015 Board and Committee Meetings is detailed on page 24 of the 2015 Annual Report.

THE BOARD PROMOTES ETHICAL AND RESPONSIBLE DECISION-MAKING

The Board has established a corporate governance framework, comprising Non-Negotiable Business Principles (Principles) and Group Policies, which forms the foundation for the way in which the Qantas Group undertakes business. The Principles and Group Policies, including the Qantas Group Code of Conduct and Ethics, are detailed in the Qantas Group Business Practices document. This framework is supported by a rigorous whistleblower program, which provides a protected disclosure process for employees.

The Qantas Group Employee Share Trading Policy sets out guidelines designed to protect the Qantas Group Directors and its employees from intentionally or unintentionally breaching the law. The Qantas Group Employee Share Trading Policy prohibits employees from dealing in the securities of any Qantas Group listed entity while in possession of material non-public information.

In addition, certain nominated Qantas employees are also prohibited from entering into any hedging or margin lending arrangement or otherwise granting a charge over the securities of any Qantas Group listed entity, where control of any sale process relating to those securities may be lost.

CORPORATE GOVERNANCE STATEMENTFOR THE YEAR ENDED 30 JUNE 2015

23


THE BOARD SAFEGUARDS THE INTEGRITY OF CORPORATE FINANCIAL REPORTING

The Board and Audit Committee closely monitor the independence of the external auditor. Regular reviews occur of the independence safeguards put in place by the external auditor. Qantas rotates the lead external audit partner every five years and imposes restrictions on the employment of personnel previously employed by the external auditor.

Policies are in place to restrict the type of non-audit services which can be provided by the external auditor and a detailed review of non-audit fees paid to the external auditor is undertaken on a half-yearly basis.

At each meeting, the Audit Committee meets privately with Executive Management without the external auditor, and with the internal and external auditors without Executive Management.

THE BOARD MAKES TIMELY AND BALANCED DISCLOSURE

Qantas is committed to ensuring that trading in its shares takes place in an orderly and informed market, with transparent and consistent communication with all shareholders. Qantas has an established process to ensure that it complies with its continuous disclosure obligations at all times, including a bi-annual confirmation by all Executive Management that the areas for which they are responsible have complied with the Group’s Continuous Disclosure Policy.

Qantas proactively communicates with its shareholders via the ASX and its web-based Newsroom, with all materials released by the Group made available to all shareholders at the same time. Additionally, Qantas actively conveys its publicly-disclosed information and seeks the views of its shareholders, large and small, in a number of forums, including at the Annual General Meeting, the Qantas Investor Day and, as is common practice among its major listed peers, through periodic meetings with current and potential institutional shareholders.

THE BOARD RESPECTS THE RIGHTS OF SHAREHOLDERS

Qantas has a Shareholder Communications Policy which promotes effective two-way communication with shareholders and the wider investment community, and encourages participation at general meetings.

Shareholders also have the option to receive communications from, and send communications to, Qantas and its Share Registry electronically, including email notification of significant market announcements.

The external auditor attends the Annual General Meeting (AGM) and is available to answer shareholder questions that are relevant to the audit.

THE BOARD RECOGNISES AND MANAGES RISK

Qantas is committed to embedding risk management practices to support the achievement of business objectives and fulfil corporate governance obligations. The Board is responsible for reviewing and overseeing the risk management strategy for the Qantas Group and for ensuring the Qantas Group has an appropriate corporate governance structure. Within that overall strategy, Management has designed and implemented a risk management and internal control system to manage Qantas’ material business risks.

During 2014/2015, the two Board committees responsible for oversight of risk-related matters, being the Audit Committee and the Safety, Health, Environment and Security Committee, undertook their annual review of the effectiveness of Qantas’ implementation of its risk management system and internal control framework.

The internal audit function is carried out by Group Audit and Risk and is independent of the external auditor. Group Audit and Risk provides independent, objective assurance and consulting services on Qantas’ system of risk management, internal control and governance.

The Audit Committee approves the Group Audit and Risk Internal Audit Charter, which provides Group Audit and Risk with full access to Qantas Group functions, records, property and personnel, and establishes independence requirements. The Audit Committee also approves the appointment, replacement and remuneration of the internal auditor. The internal auditor has a direct reporting line to the Audit Committee and also provides reporting to the Safety, Health, Environment and Security Committee.

THE BOARD REMUNERATES FAIRLY AND RESPONSIBLY

The Qantas executive remuneration objectives and approach are set out in full below.

Information about remuneration of Executive Management is disclosed to the extent required, together with the process for evaluating performance, in the Remuneration Report from page 28 of the 2015 Annual Report.

Qantas Non-Executive Directors are entitled to statutory superannuation and certain travel entitlements (accrued during service) that are reasonable and standard practice in the aviation industry. Non-Executive Directors do not receive any performance-based remuneration (see page 45 of the 2015 Annual Report).

24


The Directors of Qantas Airways Limited (Qantas) present their Report together with the Financial Statements of the consolidated entity, being Qantas and its controlled entities (Qantas Group), for the year ended 30 June 2015 and the Independent Audit Report thereon.

DIRECTORS

The Directors of Qantas at any time during or since the end of the year are:

Leigh Clifford AO Alan JoyceMaxine BrennerRichard GoodmansonJacqueline Hey Garry Hounsell (retired 26 February 2015)William Meaney Paul RaynerTodd Sampson (appointed 25 February 2015)Barbara Ward AM

Details of current Directors, their qualifications, experience and any special responsibilities, including Qantas Committee Memberships, are set out on pages 8 to 10.

PRINCIPAL ACTIVITIES

The principal activities of the Qantas Group during the course of the year were the operation of international and domestic air transportation services, the provision of freight services and the operation of a frequent flyer loyalty program. There were no significant changes in the nature of the activities of the Qantas Group during the year.

DIVIDENDS

No final dividend will be paid in relation to the year ended 30 June 2015 (2014: nil final dividend). No interim dividend was paid during the year.

SIGNIFICANT CHANGES IN STATE OF AFFAIRS

In the opinion of the Directors, there were no significant changes in the state of affairs of the Qantas Group that occurred during the year under review.

Any matter or circumstance that has arisen since the end of the year that may affect the Qantas Group’s state of affairs in future financial years has been included in Note 35 of the Financial Report.

REVIEW OF OPERATIONS

A review of, and information about, the Qantas Group’s operations, including the results of those operations during the year together with information about the Group’s financial position appear on pages 11 to 21.

The Qantas Group’s strategies, prospects for future financial years and material business risks have been included in the Review of Operations to the extent that they are not likely to result in unreasonable prejudice to the Qantas Group. In the opinion of the Directors, detail that could be unreasonably prejudicial to the interests of the Qantas Group, for example, information that is commercially sensitive, confidential or could give a third party a commercial advantage, has not been included.

EVENTS SUBSEQUENT TO BALANCE DATE

Refer to page 87 for events which occurred subsequent to balance date. Other than the matters disclosed on page 87, since the end of the year and to the date of this report no other matter or circumstance has arisen that have significantly affected or may significantly affect the Qantas Group’s operations, results of those operations or state of affairs in future years.

DIRECTORS’ MEETINGS

The number of Directors’ Meetings held (including Meetings of Committees of Directors) during 2014/2015 is as follows:

Qantas Board Audit Committee1

Safety, Health, Environment and

Security Committee1Remuneration

Committee1Nominations Committee1

Scheduled Meetings

Unscheduled Meetings

Sub-Committee Meetings2

Directors Attended Held3 Attended Held3 Attended Held Attended Held3 Attended Held Attended Held3 Attended Held

Leigh Clifford 7 7 3 3 2 24 – – – – – – 2 2

Alan Joyce 7 7 3 3 2 24 – – 4 4 – – – –

Maxine Brenner 7 7 3 3 – – 4 4 – – 3 3 – –

Richard Goodmanson 7 7 3 3 – – – – 4 4 – – 2 2

Jacqueline Hey 7 7 3 3 – – 4 4 – – – – – –

Garry Hounsell5 5 5 3 3 2 24 3 3 – – – – 2 2

William Meaney 7 7 3 3 – – – – 4 4 3 3 – –

Paul Rayner 7 7 3 3 – – – – – – 3 3 2 2

Todd Sampson6 3 3 – – – – – – – – 1 1 – –

Barbara Ward7 7 7 3 3 – – 4 4 4 4 – – – –

1 All Directors are invited to, and regularly attend, committee meetings in an ex-officio capacity. The above table reflects the attendance of a Director only where he or she is a member of the relevant committee.

2 Sub-Committee meetings convened for specific Board-related business.3 Number of meetings held during the period that the Director held office. 4 Number of meetings held and requiring attendance.5 Mr Hounsell retired as a Director on 26 February 2015.6 Mr Sampson was appointed as a Director and a Member of the Remuneration Committee on 25 February 2015.7 Ms Ward was appointed as Chair of the Audit Committee and as a Member of the Nominations Committee on 26 February following the retirement of Garry Hounsell.

DIRECTORS’ REPORTFOR THE YEAR ENDED 30 JUNE 2015

25


DIRECTORSHIPS OF LISTED COMPANIES HELD BY MEMBERS OF THE BOARD AS AT 30 JUNE 2015 – FOR THE PERIOD 1 JULY 2012 TO 30 JUNE 2015

Leigh Clifford Qantas Airways Limited – Current, appointed 9 August 2007

Alan Joyce Qantas Airways Limited – Current, appointed 28 July 2008

Maxine Brenner Qantas Airways Limited

Origin Energy Limited

Orica Limited

Growthpoint Properties Australia Limited

– Current, appointed 29 August 2013

– Current, appointed 15 November 2013

– Current, appointed 8 April 2013

– Current, appointed 19 March 2012

Richard Goodmanson Qantas Airways Limited

Rio Tinto Limited

Rio Tinto plc

– Current, appointed 19 June 2008

– Current, appointed 1 December 2004

– Current, appointed 1 December 2004

Jacqueline Hey Qantas Airways Limited

Australian Foundation Investment Company

Bendigo and Adelaide Bank Limited

– Current, appointed 29 August 2013

– Current, appointed 31 July 2013


William Meaney Qantas Airways Limited

Iron Mountain Inc

– Current, appointed 15 February 2012

– Current, appointed 7 January 2013

Paul Rayner Qantas Airways Limited

Treasury Wine Estates Limited

Boral Limited

Centrica plc


– Current, appointed 9 May 2011

– Current, appointed 5 September 2008

– Ceased, appointed 22 September 2004 and ceased 31 December 2014

Todd Sampson Qantas Airways Limited

Fairfax Media Limited

– Current, appointed 25 February 2015

– Current, appointed 29 May 2014

Barbara Ward Qantas Airways Limited

Caltex Australia Limited

Brookfield Capital Management Limited1

Brookfield Funds Management Limited2

– Current, appointed 19 June 2008

– Current, appointed 1 April 2015

– Current, appointed 1 January 2010

– Current, appointed 22 October 2003

1 Responsible entity for the Brookfield Prime Property Fund and the Multiplex European Property Fund, both of which are listed Australian registered managed investment schemes. Previously responsible entity for the Brookfield Australian Opportunities Fund, which was wound up on 30 October 2012.

2 Responsible entity for the Multiplex SITES Trust, which is a listed Australian registered managed investment scheme.

QUALIFICATIONS AND EXPERIENCE OF EACH PERSON WHO IS A COMPANY SECRETARY OF QANTAS AS AT 30 JUNE 2015

Andrew John Finch – Company Secretary – Appointed as Company Secretary on 31 March 2014 – Joined Qantas on 1 November 2012 – 2002 to 2012 – Mergers and Acquisitions Partner at Allens, Sydney – 1999 to 2001 – Managing Associate at Linklaters, London – 1993 to 1999 – Various roles at Allens, Sydney (previously Allens Arthur Robinson and Allen Allen & Hemsley), including Senior Associate (1997–1999) and Solicitor (1993–1997)

– Admitted as a solicitor of the Supreme Court of NSW in 1993

Sarah Jane Udy – Company Secretary – Appointed as a Company Secretary on 9 April 2014 – Joined Qantas on 1 April 2004 – 2002 to 2004 – Solicitor at Minter Ellison, Sydney – 2000 to 2002 – Solicitor at Chapman Tripp, Auckland, New Zealand – Admitted as a solicitor of the Supreme Court of NSW in 2002 and the High Court of New Zealand in 2000

John David Francis Morris – Company Secretary – Appointed as a Company Secretary on 9 April 2014 – Joined Qantas in 28 March 2010 – 2002 to 2008 – General Counsel and Company Secretary at KAZ Group – 1997 to 2002 – Solicitor then Senior Associate at Ashurst (previously Blake Dawson Waldron) – Admitted as a solicitor of the Supreme Court of Victoria in 1992

26


DIRECTORS’ INTERESTS AND BENEFITS

Particulars of Directors’ interests in the issued capital of Qantas at the date of this Report are as follows:

Number of Shares

Directors 2015 2014

Leigh Clifford 291,622 251,622

Alan Joyce 5,379,721 2,906,202

Maxine Brenner 21,900 15,000

Richard Goodmanson 20,000 20,000

Jacqueline Hey 30,000 30,000

William Meaney – –

Paul Rayner 201,622 71,622

Todd Sampson 5,000 n/a

Barbara Ward 47,597 47,597

In addition to the interests shown, indirect interests in Qantas shares held in trust on behalf of Mr Joyce are as follows:

Deferred shares held in trust under:

2012/13 Short Term Incentive Plan –1 284,769

1 The 2012/13 Short Term Incentive Plan shares were released from restriction and transferred to Mr Joyce on 21 August 2015.

Number of Rights

2015 2014

Rights granted under:

2013–2015 Long Term Incentive Plan –1 2,575,000

2014–2016 Long Term Incentive Plan 2,151,0002 2,151,000

2015–2017 Long Term Incentive Plan 3,248,0003

5,399,000 4,726,000

1 85 per cent of the 2013–2015 Long Term Incentive Plan Rights awarded to Mr Joyce in 2012 vested and converted to 2,188,750 shares following the performance hurdle testing conducted as at 30 June 2015.

2 Shareholders approved the award of these Rights on 18 October 2013. Performance hurdles will be tested as at 30 June 2016 to determine whether any Rights vest to Mr Joyce.3 Shareholders approved the award of these Rights on 24 October 2014. Performance hurdles will be tested as at 30 June 2017 to determine whether any Rights vest to Mr Joyce.

RIGHTS

Performance Rights are awarded to select Qantas Group Executives under the Qantas Deferred Share Plan (DSP) and the Qantas Employee Share Plan (ESP). Refer to pages 36 to 37 for further details.

The following table outlines the movements in Rights during the year:

Number of Rights

Performance Rights Reconciliation 2015 2014

Rights outstanding as at 1 July 33,579,432 28,174,047

Rights granted 64,317,000 13,790,000

Rights forfeited (1,914,000) (4,571,000)

Rights lapsed (15,614,000) (3,755,000)

Rights exercised (58,844) (58,615)

Rights outstanding as at 30 June 80,309,5881 33,579,432

1 The movement of Rights outstanding as at 30 June 2015 to the date of this Report is explained in the footnotes on page 27.

Rights will be converted to Qantas shares to the extent performance hurdles have been achieved. The Rights do not allow the holder

DIRECTORS’ REPORT CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015

27


to participate in any share issue of Qantas. No dividends are payable on Rights. The fair value of Rights granted is calculated at the date of grant using a Monte Carlo model and/or Black Scholes model.

The following Rights were outstanding at 30 June 2015:

Number of Rights

NameTesting Period

Grant Date

Value at Grant Date

2015 Net Vested

2015 Unvested

2015 Total

2014 Net Vested

2014 Unvested

2014 Total

2004/05 Performance Rights Plan

30 Jun 07 – 30 Jun 091

13 Jan 05 $2.47

– – – 14,860 – 14,860

2005 Performance Rights Plan

30 Jun 08 – 30 Jun 101

22 Nov 05 $2.67

38,517 – 38,517 44,682 – 44,682

2006 Performance Rights Plan

30 Jun 09 – 30 Jun 111

4 Oct 06 $2.95

119,071 – 119,071 156,890 – 156,890

2012–2014 Long Term Incentive Plan

30 Jun 142 23 Aug 11 $0.86

– – – – 5,208,000 5,208,000


30 Jun 142 28 Oct 11 $0.82

– – – – 1,806,000 1,806,000


30 Jun 153 2 Nov 12 $0.88

– 11,272,000 11,272,000 – 13,448,000 13,448,000


30 Jun 153 13 Jun 13 $0.70

– 329,000 329,000 – 329,000 329,000


30 Jun 16 18 Oct 13 $0.83

– 10,463,000 10,463,000 – 12,572,000 12,572,000


30 Jun 17 15 Sep 14 $0.97

– 50,925,000 50,925,000 – – –


30 Jun 17 24 Oct 14 $0.972

– 4,582,500 4,582,500 – – –


31 Aug 17 3 May 15 $3.05

– 2,580,500 2,580,500 – – –

Total 157,588 80,152,000 80,309,588 216,432 33,363,000 33,579,432

1 These Rights convert to Qantas shares on the 10th anniversary of the date of award, however Executives may call for the Rights to be converted sooner at their request.2 All unvested Rights lapsed following the performance hurdle testing as at 30 June 2014.3 85 per cent of Rights vested subsequent to 30 June 2015 and before the issuance of this report following the performance hurdle testing conducted as at 30 June 2015.

28


REMUNER ATION REPORT (AUDITED)


COVER LETTER TO THE REMUNERATION REPORT

Dear Shareholder,

Qantas is pleased to present its Remuneration Report for 2014/2015, which sets out remuneration information for the Chief Executive Officer (CEO), direct reports to the CEO (Executive Management) and Non-Executive Directors.

In addition to the detailed Remuneration Report, we have provided an introduction to the Report which contains a summary of: – The Remuneration Framework and how it was applied for the 2014/2015 financial year – The remuneration outcomes for the CEO

2014/2015 Remuneration Outcomes

2014/2015 was a very successful year. Management and all employees have performed extremely well, continuing to deliver great customer experiences whilst transforming the business. Throughout the year, management:

– Continued to deliver on its commitments around transforming the business with the program delivering $894 million of benefits during 2014/2015 and in doing so returned the business to profitability (delivering an Underlying PBT result of $975 million)

– Continued to invest in both customer product and training our people, and this has been reflected in our record customer advocacy scores

– Maintained discipline over the allocation of capital, facilitating a $1 billion debt reduction which provided a strong platform for sustainable growth

These successes have been recognised in our share price which increased by just over 150 per cent during the year. We were the best performing stock of the S&P/ASX 100 (ASX100) companies during 2014/2015.

The Executive Remuneration Framework is designed to attract, motivate, retain and appropriately reward a capable Executive team. The 2014/2015 achievements have also been recognised in the remuneration outcomes, as follows:

– Annual incentive awards were made

Bonuses were paid to Executives based on performance against the 2014/15 Short Term Incentive Plan’s (STIP) financial and non-financial performance measures for 2014/2015. The Board assessed performance against this ‘scorecard’ at 140 per cent.

– Long Term Incentive Plan (LTIP) awards vested

Rights that were awarded to Executives in 2012 were tested against the Plan’s three year performance measures. Based on this performance test, 85 per cent of Rights vested and were converted to Qantas shares.

As a result of these remuneration outcomes, the CEO’s statutory remuneration for 2014/2015 totalled $6.70 million. The CEO’s actual remuneration outcome, which includes $4.56 million of growth in the value of the vested shares to the CEO under the LTIP, totalled $11.88 million.

It is also worth noting that the freeze on Base Pay (which has been in place since 2011 for the CEO and since 2012 for other Executives) continued throughout the year. In addition, from 1 January 2014 until 30 June 2015, the CEO elected to forgo five per cent of his Base Pay and the Chairman and all other Directors elected to forgo five per cent of their fees.

More details of the remuneration outcomes are provided in the Remuneration Report.

The Board remains committed to a remuneration framework that is aligned to the Qantas Group strategy, is performance based, motivates and appropriately rewards Management, meets shareholders’ requirements and encourages decision-making that is focused on the longer-term.

Paul Rayner Chairman, Remuneration Committee

29


INTRODUCTION

OVERVIEW OF THE EXECUTIVE REMUNERATION FRAMEWORK

The objectives of the Executive Remuneration Framework are to attract, motivate, retain and appropriately reward a capable Executive team. This is achieved by setting pay opportunity at an appropriate level and by linking remuneration outcomes to Qantas Group performance.

Executive Remuneration for 2014/2015

Qantas is committed to setting remuneration policy to align with the creation of shareholder value. In the four previous years: – Annual incentive awards were not paid to the CEO in two years (2011/2012 and 2013/2014) and only partial awards were made in the other two years (2010/2011 and 2012/2013)

– LTIP awards have not vested (and in fact had not vested for five straight years)

Remuneration outcomes for 2014/2015 have reflected the very strong financial performance of the Group, which has seen: – A return to profitability (with management’s delivery of the Qantas Transformation program the biggest contributing factor to the turnaround)

– Qantas being the best performing stock of ASX100 companies during 2014/2015

Awards were made under the annual incentive (the 2014/15 STIP), based on achievement against the scorecard of financial and non-financial measures. Management delivered the Qantas Transformation program while also continuing to invest in the customer through this period (both via product enhancements and customer service training). As a result, an excellent profit outcome was delivered while record customer satisfaction scores were achieved in both Qantas International and Qantas Domestic.

Rights vested under the Long Term Incentive Plan (under the 2013–2015 LTIP). A fixed number of Rights were awarded to executives in 2012, and based on Qantas’ financial performance over the three year performance period, 85 per cent of these Rights vested following testing at 30 June 2015 and converted to Qantas shares. The value of this fixed number of shares awarded to each executive increases or decreases depending on the share price. Over the three year performance period of the 2013–2015 LTIP, the value of these shares has increased by 194 per cent. In the remuneration outcomes tables, we have disclosed the value of these shares at the start of the performance period and have also disclosed the increase in the value of these shares that has been driven by the share price growth over the performance period.

The Qantas Executive Remuneration Framework and the remuneration outcomes for 2014/2015 are summarised as follows:

Executive Remuneration Component Delivery Performance Measures2014/2015 Remuneration and Performance Outcomes

Base Pay

A guaranteed salary level inclusive of superannuation.

A more detailed description is provided on page 35.

Cash, superannuation and other salary sacrifice benefits (if elected).

An individual’s Base Pay is a fixed/guaranteed element of remuneration.

No increases to the Base Pay of the CEO and KMP.

Additionally, the CEO opted to forgo five per cent of his Base Pay (from 1 January 2014 until 30 June 2015).

Annual Incentive

Referred to as the Short Term Incentive Plan (STIP).

A more detailed description is provided on pages 35 to 36.

Two-thirds cash, one-third shares (with a two year restriction period).

Each year an Executive may receive an award that is a combination of a cash bonus and an award of restricted shares if the Plan’s performance conditions are achieved.

A scorecard of performance measures.

Underlying PBT is the primary performance measure (with a 50 per cent weighting).

Other performance measures are explicitly aligned to the execution of the Qantas Group strategy, including delivering on the transformation agenda.

2014/15 STIP awards paid with a STIP scorecard outcome of 140 per cent.

Underlying PBT measure exceeded.

Transformation targets exceeded.

Good performance against other financial and non-financial measures.

Long Term Incentive

Referred to as the Long Term Incentive Plan (LTIP).

The LTIP is described in more detail on pages 36 to 37.

Rights over Qantas shares.

If performance conditions over a three year period are achieved, the Rights vest and convert to Qantas shares on a one-for-one basis.

The performance measures for each of the 2013–2015 LTIP, 2014–2016 LTIP and 2015–2017 LTIP are the relative Total Shareholder Return (TSR) performance of Qantas compared to:

– companies with ordinary shares included in the ASX100

– an airline peer group (Global Listed Airlines)

Partial vesting – 85 per cent.

LTIP awards under the 2013–2015 LTIP were tested as at 30 June 2015 and the performance measures were achieved:

– in full against ASX100 peer group

– in part against the Global Listed Airlines peer group

Therefore,

– 85 per cent of Rights converted to shares

– 15 per cent of Rights lapsed

30


REMUNER ATION REPORT (AUDITED) CON T INUED

Changes to the Executive Remuneration Framework for 2014/2015

Changes to Pay Mix for 2014/2015

For 2014/2015 only, the pay mix for the CEO and Executive Management changed, with a decrease in weighting towards annual incentive (STIP) and an increase in weighting towards long term incentive. These changes did not increase the total ‘At Target’ pay for each Executive for 2014/2015, as each Executive’s LTIP opportunity was offset by a reduction in their annual incentive opportunity.

The pay-mix change for 2014/2015 further aligned Executive Management with the immediate priorities of the transformation agenda, including the achievement of $2 billion in transformation benefits over the three years to 30 June 2017. The change was particularly relevant for 2014/2015 as the timeframe for delivery of the $2 billion of transformation benefits is for the same three year period as the performance period for the LTIP awarded in 2014/2015 (2015–2017 LTIP). In the 2014 Remuneration Report, it was disclosed that the change for 2014/2015 was a one-off only and therefore for 2015/2016 each Executive will revert to their original pay mix.

The pay mix for Executive Management is detailed on page 41. For the CEO, this change involves:

‘At Target’ opportunity 2013/2014 2014/2015 2015/2016

STIP ‘At Target’ opportunity expressed as a % of Base Pay 120 80 120

LTIP ‘At Target’ opportunity expressed as a % of Base Pay 80 120 80

REMUNERATION OUTCOMES FOR THE CEO IN 2014/2015

The remuneration outcomes detailed in the table below demonstrate how directly the CEO’s pay in 2014/2015 aligns with Qantas’ performance and the significant share price growth achieved during the year. That is:

– The CEO has not received an increase in Base Pay and he elected to forgo five per cent of his Base Pay from 1 January 2014 until 30 June 2015

– The CEO has received an award under the 2014/15 STIP comprising a cash bonus of $1,904,000 and awarded $952,000 worth of shares with a two year restriction period

– 85 per cent of the 2013–2015 LTIP Rights awarded to the CEO vested following testing at 30 June 2015 and converted to 2,188,750 shares. At the start of the LTIP performance period (1 July 2012) this number of shares was valued at $2,353,000 (2,188,750 shares at $1.075 share price). Given the 194 per cent increase in share price (to $3.16 on 30 June 2015), the value of these shares has appreciated by $4,563,000

The following table outlines the remuneration outcomes for the CEO for 2014/2015.

CEO Remuneration Outcomes1

2015 $’000

2014 $’000

2015 ‘At Target’

Pay $’000

2015 as a Percentage

of ‘At Target’ pay

%

Base Pay (cash) 2,000 2,054 2,125 94

STIP – cash bonus 1,904 – 1,133 168

STIP – restricted shares2 952 – 567 168

LTIP – vesting3 2,353 – 2,550 92

Other 112 (45) – n/a

Total – excluding share price growth 7,321 2,009 6,375 115

LTIP – share price growth4 4,563

Total – including share price growth 11,884

1 Detail of non-statutory remuneration methodology is explained on pages 36 and 37.2 The number of restricted shares to be awarded will be determined based on the seven

calendar day Volume Weighted Average Share Price as at 27 August 2015.3 LTIP vesting at 85 per cent valued at the start of the performance period (1 July 2012 when

the share price was $1.075).4 Increase in the value of the vested shares over the performance period (1 July 2012 to

30 June 2015).

Link between CEO Pay and Performance

The CEO’s pay is linked to Qantas’ performance through the performance measures under both the annual incentive and the long term incentive. At Qantas, annual incentives are only paid in years when, in the Board’s view, the business has performed well. Similarly, long term incentives only vest where financial performance has been strong and challenging three year performance measures are met. This is demonstrated in the CEO Remuneration Outcome History graph on page 31.

Base Pay

The CEO’s Base Pay has been frozen since 1 July 2011 and he did not receive an increase to Base Pay during 2014/2015. Additionally, the CEO elected to forgo five per cent of his Base Pay from 1 January 2014 until 30 June 2015.

Base Pay (cash) is Base Pay of $2,125,000 less Base Pay forgone of $106,250 and less superannuation contributions of $18,783.

Annual Incentive – 2014/15 STIP Outcome

In determining outcomes under the STIP, the Board assesses performance against financial, safety and other key business measures as part of a balanced scorecard, as outlined on page 38.

The STIP award paid to the CEO for 2014/2015 was determined primarily by management’s delivery of the very strong financial results as well as a high level of achievement against the non-financial measures that comprise the STIP scorecard. The Board assessed the CEO and management’s contribution to these results in particular:

– Delivery in 2014/2015 of over $894 million cost savings and revenue enhancements driven by the Qantas Transformation program

– Management’s prudent approach to fuel hedging and active restructuring of hedged positons, as well as the transformation program delivering operating efficiencies that reduced fuel consumption, enabled a $597 million reduction in year-on-year fuel expense. Additionally, Qantas’ approach to fuel hedging allowed a higher participation in falling fuel prices than that achieved by many of our competitors

– Continuing to invest in the customer (through investment in product and training our people), which delivered record customer advocacy, or Net Promoter Scores


31


Based on the Board’s assessment of performance against the STIP scorecard measures and the CEO’s individual performance, the CEO’s STIP award was calculated as follows:

Total = Base Pay x‘At Target’

Opportunity xScorecard

Result x

Individual Performance

Factor

2,856,000 = 2,125,000 x 80% x 140% x 1.2

The CEO’s 2014/15 STIP award was paid two-thirds as a cash bonus of $1,904,000 and one-third as deferred shares worth $952,000 with a two year restriction period.

More detail on the 2014/15 STIP is provided on pages 35 to 36.

Long Term Incentive – 2013–2015 LTIP Outcome

At the 2012 Annual General Meeting (AGM), shareholders approved an award of 2,575,000 Rights to the CEO under the 2013–2015 LTIP. The vesting of these Rights was subject to Qantas TSR performance compared to two peer groups (companies with ordinary shares included in the ASX100 and an airline peer group (Global Listed Airlines).

Over the three year performance period of the 2013–2015 LTIP, the Qantas share price grew from $1.075 to $3.16, delivering a total shareholder return of +194 per cent.

The following graph demonstrates Qantas TSR performance versus the ASX100 and MSCI World Airline Indices over the performance period of the 2013–2015 LTIP.

-50%

0%

50%

100%

150%

200%

250%

300%

QANTAS TSR PERFORMANCE v PEER GROUPS (%)

Qantas S&P / ASX 100 MSCI World Airlines

1July 2012 1July 2013 1July 2014 30 June 2015

This share price performance meant that Qantas ranked in the 93rd percentile of companies in the ASX100 and ranked in the 60th percentile of the airline peer group. Based on this performance, 85 per cent of Rights vested and the CEO was awarded 2,188,750 shares.

The face value of the vested shares based on the Qantas share price at the start of the performance period was $2,353,000. The value of these shares increased by $4,563,000 over the three year performance period.

CEO Remuneration Outcomes History (2010/2011 to 2014/2015)

The Group’s incentive awards are designed to align Executive remuneration with business performance. This is demonstrated in the history of the incentive plan outcomes for the CEO.

CEO STIP LTIP Outcomes

2011$552

2012$95

2013$186

2014($646)

2015$975

65% 38% 85%140%0% 0% 0% 0% 0% 0%0%

20%

40%

60%

80%

100%

120%

140%

STIP LTIP STIP LTIP STIP LTIP STIP LTIP STIP LTIP

OU

TCO

ME

%LTIP Vesting STIP Scorecard Outcome

Outcomes

UnderlyingPBT ($m):

STATUTORY REMUNERATION DISCLOSURES FOR THE CEO

The statutory remuneration disclosures are prepared in accordance with Australian Accounting Standards and differ significantly from the outcomes for the CEO resulting from performance in 2014/2015 outlined on page 30.

These differences arise due to the accounting treatment of share-based payments (such as the STIP and LTIP). A reconciliation of remuneration outcomes to statutory remuneration disclosures is provided on page 35.

CEO Statutory Remuneration Table

2015 $’000

2014 $’000

2015 ‘At Target’ Pay

$’000

Base Pay (cash) 2,000 2,054 2,125

STIP – cash bonus 1,904 – 1,133

STIP – share-based 423 155 567

LTIP 2,261 1,808 2,550

Other 112 (45) –

Total 6,700 3,972 6,375

32



REMUNERATION REPORT FOR THE YEAR ENDED 30 JUNE 2015

The Remuneration Report sets out remuneration information for Non-Executive Directors, the CEO and Executive Management.

Section 300A of the Corporations Act 2001 requires disclosure of remuneration information for Key Management Personnel (KMP), with KMP defined in Australian Accounting Standard AASB 124 Related Party Disclosures as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.

The KMP for 2014/2015 includes some members of Executive Management.

During the year, the following changes were made to the KMP: – Gareth Evans ceased in the role of Chief Financial Officer and was appointed to the role of CEO Qantas International – Tino La Spina was appointed to the role of Chief Financial Officer – Andrew David was appointed to the role of CEO Qantas Domestic – Simon Hickey, former CEO Qantas International, ceased employment with Qantas – Lyell Strambi, former CEO Qantas Domestic, ceased employment with Qantas

1) EXECUTIVE REMUNERATION OBJECTIVES AND APPROACH

In determining Executive remuneration, the Board aims to do the following: – Attract, retain and appropriately reward a capable Executive team – Motivate the Executive team to meet the unique challenges the company faces as a major international airline based in Australia – Link remuneration to performance

To achieve this, Executive remuneration is set with regard to the size and nature of the role (with reference to market benchmarks) and the performance of the individual in the role. In addition, remuneration includes ‘at risk’ or performance-related elements for which the objectives are to:

– Link Executive reward with Qantas’ business objectives and financial performance – Align the interests of Executives with shareholders – Support a culture of employee share ownership – Support the retention of Executives

2) ROLE OF THE REMUNERATION COMMITTEE

The Remuneration Committee (a Committee of the Board, whose members are detailed on pages 8 to 10) has the role of reviewing and making recommendations to the Board on specific Executive remuneration matters at Qantas and ensuring remuneration decisions are appropriate from the perspectives of business performance, governance, disclosure, reward levels and market conditions.

In fulfilling its role, the Remuneration Committee is specifically concerned with ensuring that its approach will: – Motivate the CEO, Executive Management and the broader Executive team to pursue the long-term growth and success of Qantas – Demonstrate a clear relationship between pay and performance – Ensure an appropriate balance between ‘fixed’ and ‘at risk’ remuneration, reflecting the short and long-term performance objectives of Qantas

– Differentiate between higher and lower performers through the use of a performance management framework

During 2014/2015, the Remuneration Committee re-appointed Ernst & Young (EY) as its remuneration consultant. The Remuneration Committee has established protocols in relation to the appointment and use of remuneration consultants to support compliance with the Corporations Act 2001, which are incorporated into the terms of engagement with EY.

The Remuneration Committee did not request any remuneration consultants to provide a remuneration recommendation during 2014/2015.

3) EXECUTIVE REMUNERATION FRAMEWORK

The Executive Remuneration Framework as it applies to the CEO and Executive Management contains three elements: – Base Pay – a guaranteed salary level inclusive of superannuation – Annual Incentive – referred to as the Short Term Incentive Plan (STIP) – Long Term Incentive – referred to as the Long Term Incentive Plan (LTIP)

The ‘At Target’ pay for the CEO and Executive KMP is set with reference to external market data including comparable roles in other listed Australian companies and in international airlines. The primary benchmark is a revenue-based peer group of other listed Australian companies. The Board believes this is the appropriate benchmark, as it is the comparator group whose roles best mirror the complexity and challenges in managing Qantas’ businesses and is also the peer group with whom Qantas competes for Executive talent.


33


4) REMUNERATION OUTCOMES FOR 2014/2015

The remuneration decisions and outcomes at Qantas are clearly linked to Qantas’ performance via the performance measures in the STIP and LTIP.

This year’s strong financial performance resulted in outcomes above the ‘At Target’ level under the 2014/15 STIP. The result under the STIP is detailed on pages 35 to 36.

The performance measures for the 2013–2015 LTIP, being Qantas’ TSR relative to companies with ordinary shares included in the ASX100 and an airline peer group (Global Listed Airlines), were tested as at 30 June 2015. Based on the vesting scale, Qantas ranked in the 93rd percentile of companies in the ASX100 and ranked in the 60th percentile of the airline peer group. This resulted in 85 per cent of Rights vesting and converting to Qantas shares with the remaining Rights lapsing.

The following table summarises the remuneration decisions and outcomes for the CEO and Executive KMP for the year ended 30 June 2015. The remuneration detailed in this table is aligned to the current performance period and therefore is particularly useful in understanding current year pay and its alignment with current year performance.

Remuneration Outcomes Table – CEO and Executive KMP1

STIP Outcomes3LTIP

Outcomes4

$’000sBase Pay

(Cash)2 Cash BonusDeferred

AwardLTIP

Vesting5Other

Benefits6Termination

Benefit10 Total

LTIP Share Price

Growth7

Total Including

Share Price Growth

Current Executives

Alan Joyce Chief Executive Officer

2015

2014

2,000

2,054

1,904

–

952

–

2,353

–

112

(45)

–

–

7,321

2,009

4,563

–

11,884

–Tino La Spina8 Chief Financial Officer from 1 March 2015

2015

2014

279

n/a

152

n/a

76

n/a

19

n/a

152

n/a

–

n/a

678

n/a

36

n/a

714

n/a

Andrew David8 CEO Qantas Domestic from 1 March 2015

2015

2014

277

n/a

152

n/a

76

n/a

29

n/a

72

n/a

–

n/a

606

n/a

57

n/a

663

n/a

Gareth Evans CEO Qantas International from 1 March 2015 Chief Financial Officer to 28 February 2015

2015

2014

981

981

537

–

268

–

692

–

107

69

–

–

2,585

1,050

1,341

–

3,926

–

Lesley Grant CEO Qantas Loyalty

2015

2014

781

782

411

–

205

–

277

–

58

16

–

–

1,732

798

537

–

2,269

–Jayne Hrdlicka CEO Jetstar Group

2015

2014

981

982

513

–

257

–

692

–

121

61

–

–

2,564

1,043

1,341

–

3,905

–Total 2015

2014

5,299

4,799

3,669

–

1,834

–

4,062

–

622

101

–

–

15,486

4,900

7,875

–

23,361

–

Former Executives

Simon Hickey9 Former CEO Qantas International to 28 February 2015

2015

2014

860

982

612

–

–

–

663

–

177

(34)

833

–

3,145

948

1,253

–

4,398

–

Lyell Strambi9 Former CEO Qantas Domestic to 28 February 2015

2015

2014

654

982

466

–

–

–

615

–

196

95

483

–

2,414

1,077

1,162

–

3,576

–

1 Detail of non-statutory remuneration methodology is explained on pages 36 and 37.2 Base Pay (cash) paid to each Executive during the year.3 The full value of STIP awards made to each Executive during each of the 2014/2015 and 2013/2014 financial years.4 LTIP awards vested in 2014/2015 at 85 per cent. LTIP awards did not vest in 2013/2014, therefore nil value shown.5 The face value of shares awarded based on the Qantas share price at the start of the performance period (1 July 2012).6 Other Benefits are detailed on page 34.7 The increase in the value of the share award from the start of the performance period (1 July 2012) to the end of the performance period (30 June 2015). 8 2014/2015 remuneration reflects the period of time in a key management role for Mr La Spina (1 March 2015 to 30 June 2015) and Mr David (1 March 2015 to 30 June 2015). 9 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015 and Mr Strambi ceased as a KMP and ceased employment with Qantas on

28 February 2015. 2014/2015 remuneration is included up until the termination date of Mr Hickey of 15 May 2015 and for Mr Strambi of 28 February 2015.10 Under the terms of separation, termination benefits of 10 months’ Base Pay and 6 months’ Base Pay were paid to Mr Hickey and Mr Strambi, respectively. As good leavers, both Mr Hickey

and Mr Strambi were eligible to receive deferred cash payments prorated for the portion of the performance period employed under the 2014/15 STIP and the Rights granted under 2013–2015 LTIP which lapsed on the termination date and were replaced by the deferred cash payments as disclosed in the table above.

Refer to section 6 of the Remuneration Report on pages 35 to 37 for detail of the Executive Remuneration Structure, a description of Base Pay, STIP and LTIP and analysis of the 2014/2015 outcomes for the STIP and LTIP.

34



5) STATUTORY REMUNERATION DISCLOSURES FOR THE YEAR ENDED 30 JUNE 2015

The statutory remuneration disclosures for the year ended 30 June 2015 are detailed below and are prepared in accordance with Australian Accounting Standards and differ from the 2014/2015 remuneration outcomes outlined above. These differences arise due to the accounting treatment of share-based payments (such as the STIP and LTIP).

Statutory Table – CEO and Executive KMP Incentive Plan – Accounting Accrual Other Benefits

Equity Settled Share-based Payments

$’000sBase Pay

(Cash)1,2STIP Cash

Bonus1Deferred

Shares3 Rights Sub-total

Non-cash

Benefits1,4

Post-employ-

mentBenefits5

OtherLong-term

Benefits6 Sub-total

Termin-ation

Benefits9 Total

Current Executives

Alan Joyce Chief Executive Officer

2015

2014

2,000

2,054

1,904

–

423

155

2,261

1,808

6,588

4,017

63

38

70

64

(21)

(147)

112

(45)

–

–

6,700

3,972

Tino La Spina7 Chief Financial Officer from 1 March 2015

2015

2014

279

n/a

152

n/a

17

n/a

76

n/a

524

n/a

24

n/a

32

n/a

96

n/a

152

n/a

–

n/a

676

n/a

Andrew David7 CEO Qantas Domestic from 1 March 2015

2015

2014

277

n/a

152

n/a

128

n/a

86

n/a

643

n/a

20

n/a

32

n/a

20

n/a

72

n/a

–

n/a

715

n/a

Gareth Evans CEO Qantas International from 1 March 2015 Chief Financial Officer to 28 February 2015

2015

2014

981

981

537

–

126

76

760

520

2,404

1,577

39

41

44

42

24

(14)

107

69

–

–

2,511

1,646

Lesley Grant CEO Qantas Loyalty

2015

2014

781

782

411

–

96

54

351

210

1,639

1,046

20

8

44

41

(6)

(33)

58

16

–

–

1,697

1,062

Jayne Hrdlicka CEO Jetstar Group

2015

2014

981

982

513

–

119

60

760

439

2,373

1,481

76

8

44

41

1

12

121

61

–

–

2,494

1,542

Total

2015

2014

5,299

4,799

3,669

–

909

345

4,294

2,977

14,171

8,121

242

95

266

188

114

(182)

622

101

–

–

14,793

8,222

Former Executives

Simon Hickey8 Former CEO Qantas International to 28 February 2015

2015

2014

860

982

612

–

43

66

665

441

2,180

1,489

43

32

42

41

92

(107)

177

(34)

833

–

3,190

1,455

Lyell Strambi8 Former CEO Qantas Domestic to 28 February 2015

2015

2014

654

982

466

–

46

72

506

520

1,672

1,574

41

50

55

41

100

4

196

95

483

–

2,351

1,669

1 Short-term employee benefits include Base Pay (cash), STIP cash bonus and non-cash benefits.2 Base Pay (cash) for Mr Joyce is Base Pay of $2,125,000 (2014: $2,125,000) less Base Pay forgone of $106,250 (2014: $53,125) less superannuation contributions of $18,783 (2014: $17,775).3 Deferred Shares for Mr La Spina and Mr David includes STIP awards which were made since commencing as KMP and share awards under the Manager Incentive Plan as well as Deferred

Share Plan award granted to Mr David prior to commencing as KMP. For other Executives, Deferred Shares include STIP awards.4 Non-cash Benefits include the value of travel benefits whilst employed and other minor benefits.5 Post-employment Benefits include superannuation and an accrual for post-employment travel of $51,000 for Mr Joyce and $25,000 for each other Executive (2014: $47,000 for Mr Joyce

and $22,000 for each other Executive).6 Other Long-term Benefits include movement in annual leave and long service leave balances. The accounting value of other long-term benefits may be negative, for example where an

Executive’s annual leave balance decreases as a result of taking more than the 20 days annual leave they accrue during the year.7 2014/2015 remuneration reflects the period of time in a key management role for Mr La Spina (1 March 2015 to 30 June 2015) and Mr David (1 March 2015 to 30 June 2015). 8 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015 and Mr Strambi ceased as a KMP and ceased employment with Qantas on

28 February 2015. 2014/2015 remuneration is included up until the termination date of Mr Hickey of 15 May 2015 and for Mr Strambi of 28 February 2015.9 Under the terms of separation, termination benefits of 10 months’ Base Pay and 6 months’ Base Pay were paid to Mr Hickey and Mr Strambi, respectively. As good leavers, both Mr Hickey

and Mr Strambi were eligible to receive deferred cash payments prorated for the portion of the performance period employed under the 2014/15 STIP and the Rights granted under 2013–2015 LTIP which lapsed on the termination date and were replaced by the deferred cash payments as disclosed in the table on page 33 (the fair values of the prorated Rights on the original grant date was $542,000 for Mr Hickey and $503,000 for Mr Strambi). The Rights granted under the 2014–2016 LTIP and 2015–2017 LTIP to Mr Hickey and Mr Strambi lapsed on the termination date and in replacement of these lapsed Rights, they are eligible to receive deferred cash payments subject to the Board’s discretion and the achievement of the original LTIP performance conditions, with the payment amount pro-rated for the portion of the performance period employed. The fair values of the prorated Rights under the 2014–2016 LTIP and 2015–2017 LTIP on the original grant dates totalled $617,000 for Mr Hickey and $512,000 for Mr Strambi. The fair values of the prorated Rights on the termination date were $2,492,000 for Mr Hickey and $1,669,000 for Mr Strambi.


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A reconciliation of the CEO’s remuneration outcome to the statutory disclosures is detailed below as an example.

CEO’s Remuneration Outcome to Statutory Remuneration Disclosure for 2014/2015Reconciliation ($’000) Description

Remuneration outcome for the CEO for 2014/2015 11,884

Treatment of STIP

Add: Accounting value for 2012/13 STIP and 2014/15 STIP deferred awards

Less: 2014/15 STIP deferred award

423

(952)

The STIP amount shown in the remuneration outcomes tables is the full value of the STIP awarded for the corresponding year calculated as a product of Base Pay, ‘At Target’ Opportunity, STIP Scorecard Result and Individual Performance Factor (rather than amortising the accounting values over the relevant performance and service periods as per the accounting standards).

Treatment of LTIP

Add: Accounting value for LTIP award tested on relative TSR performance (2013–2015 LTIP)1

850 The LTIP amount shown in the remuneration outcomes tables is made up of the value of the LTIP driven by vesting based on the share price at the start of the performance period and value of the LTIP driven by share price growth (rather than amortising the accounting values over the relevant performance and service periods as per the accounting standards).

Add: Accounting value for LTIP award to be tested in a future year (2014–2016 LTIP)2

670

Add: Accounting value for LTIP award to be tested in a future year (2015–2017 LTIP)3

741

Less: 2013–2015 LTIP – vesting4 (2,353)

Less: 2013–2015 LTIP – share price growth5 (4,563)

Statutory remuneration disclosure for the CEO for 2014/2015 6,700

1 The 2013–2015 LTIP was tested as at 30 June 2015. 85 per cent of Rights vested and the remaining Rights lapsed.2 The 2014–2016 LTIP is due to be tested as at 30 June 2016. The Qantas share price at the start of the performance period (1 July 2013) was $1.35.3 The 2015–2017 LTIP is due to be tested as at 30 June 2017. The Qantas share price at the start of the performance period (1 July 2014) was $1.26.4 The face value of shares awarded based on the Qantas share price at the start of the performance period (1 July 2012).5 The increase in the value of the share award from the start of the performance period (1 July 2012) to the end of the performance period (30 June 2015).

6) EXECUTIVE REMUNERATION STRUCTURE

Base Pay Base Pay is a guaranteed salary level, inclusive of superannuation. Each year, the Remuneration Committee reviews the Base Pay for the CEO and Executive Management. An individual’s Base Pay, being a guaranteed salary level, is not related to Qantas’ performance in a specific year.

Base Pay (cash), as disclosed in the remuneration tables, excludes superannuation (which is disclosed as Post-employment Benefits) and includes salary sacrifice components such as motor vehicles.

In performing a Base Pay review, the Board makes reference to external market data including comparable roles in other listed Australian companies and international airlines. The primary benchmark is a revenue-based peer group of other listed Australian companies. The Board believes this is the appropriate benchmark, as it is the comparator group whose roles best mirror the size, complexity and challenges in managing Qantas’ businesses and is also the peer group with whom Qantas competes for Executive talent.

A general management pay freeze was in place during 2014/2015 and there have been no increases to the Base Pay for Mr Joyce since July 2011 and for Mr Evans, Ms Hrdlicka and Ms Grant since July 2012. In addition, the CEO opted to forgo five per cent of his Base Pay from 1 January 2014 until 30 June 2015.

Mr David and Mr La Spina commenced in their KMP roles on 1 March 2015 and their Base Pay was set at a level lower than their predecessors.

The Base Pay for each Executive KMP is outlined on page 40.

Annual Incentive The Short Term Incentive Plan (STIP) is the annual ‘at risk’ incentive plan for members of Qantas Executive Management. Each year these Executives may receive an award that is a combination of cash and restricted shares to the extent that the Plan’s performance conditions are achieved.

Performance Conditions

The Board sets a ‘scorecard’ of performance conditions for the 2014/15 STIP, explicitly aligning the performance measures to the Qantas Group strategy. Underlying PBT is the key budgetary and financial performance measure for the Qantas Group and is therefore the key performance measure in the STIP scorecard.

The Board sets targets for each scorecard measure, and at the end of the financial year the Board assesses performance against each scorecard measure and determines the overall STIP scorecard outcome.

A detailed description of the STIP scorecard is provided on pages 38 to 39.

The Board retains discretion over any awards made under the STIP. For example, the Board may decide to adjust the STIP scorecard outcome where it determines that it does not reflect the performance achieved during the year. Circumstances may occur where scorecard measures have been achieved or exceeded, but in the view of the Board it is inappropriate to make a cash award under the STIP. The Board may determine

36


that either no award will be made (as it did for the CEO in 2011/2012 and 2013/2014), only a partial award be made (as it did in 2010/2011 and 2012/2013), or that any award will be entirely deferred and/or delivered in Qantas shares (as it did in 2010/2011). On the other hand, there may be circumstances where performance is below an agreed target; however, the Board determines that it is appropriate to pay some STIP award. While the Board sees this balanced scorecard approach as an important design element of the STIP, it also recognises that the overall STIP outcome must be considered in the context of the Group’s financial performance.

An individual’s performance is recognised via an Individual Performance Factor (IPF). IPFs are generally in the range of 0.8 to 1.2, however in case of under-performance the IPF may be zero and in exceptional circumstances the IPF may be as high as 1.5.

Calculation of STIP Awards

STIP awards are calculated as follows:

Value of STIP Award

=Base Pay

X‘At Target’

OpportunityX

Scorecard Result

XIndividual

Performance Factor (IPF)

Payment of Awards In a year where STIP awards are made, two-thirds of the STIP award would be paid as a cash bonus, with the remaining one-third deferred into Qantas shares with a two year restriction period.

The Board retains discretion as to how STIP awards are delivered.

Maximum Outcome The STIP scorecard has a hypothetical maximum outcome of 175 per cent of ‘At Target’, which could only be achieved if the maximum overdrive level of performance is achieved on every STIP performance measure.

The scorecard result is then applied to an individual’s ‘At Target’ opportunity and their IPF. As IPFs are generally between 0.8 and 1.2, a hypothetical maximum has been modelled using an IPF at the top of this range of 1.2. In the past and in extraordinary circumstances, participants have been allocated an IPF of up to 1.5, however this has never been given to date where there has been a maximum scorecard outcome.

Hypothetically, a STIP award to the CEO equal to 168 per cent of Base Pay could result (i.e. the ‘At Target’ opportunity for 2014/2015 of 80 per cent of Base Pay multiplied by a hypothetical Scorecard Result of 175 per cent and multiplied by an example IPF of 1.2).

The minimum outcome is nil, which would occur if the threshold level of performance is missed on each STIP measure.

Disclosure Remuneration Outcomes Table

The full value of the STIP awarded for the corresponding year is disclosed in the table on page 33.

Statutory Remuneration Table

Disclosure of STIP awards in the statutory remuneration table on page 34 is based on the requirements of the Corporations Act and applicable Australian Accounting Standards. In the statutory remuneration table, STIP awards are disclosed as either:

– A cash incentive for any cash bonus paid or – A share-based payment for any component awarded in deferred shares

Where share-based STIP awards involve deferral over multiple reporting periods, they are reported against each period in accordance with accounting standards.

Long Term Incentive Plan

The Long Term Incentive Plan (LTIP) involves the granting of Rights over Qantas shares. If performance and service conditions are satisfied, the Rights vest and convert to Qantas shares on a one-for-one basis. If performance conditions are not met, the Rights lapse.

Performance Conditions

The performance measures for each of the 2013–2015 LTIP (tested at 30 June 2015), 2014–2016 LTIP (to be tested as at 30 June 2016) and 2015–2017 LTIP (to be tested as at 30 June 2017) are:

– The relative TSR of Qantas compared to companies with ordinary shares included in the ASX100 – The relative TSR of Qantas compared to an airline peer group (Global Listed Airlines)

These Rights will only vest in full if Qantas’ TSR performance ranks at or above the 75th percentile compared to both the ASX100 and the Global Listed Airlines peer groups.

Qantas’ financial framework targets top quartile TSR performance relative to ASX100 companies and global airline peers and therefore relative TSR performance against these peer groups has been chosen as the performance measures for the LTIP. The peer groups selected provides a comparison of relative shareholder returns relevant to most Qantas investors:

– The ASX100 peer group was chosen for relevance to investors with a primary interest in the equity market for major Australian listed companies, of which Qantas is one

– The Global Listed Airlines peer group was chosen for relevance to investors, including investors based outside Australia, whose focus is on the aviation industry sector and measuring returns from listed companies impacted by comparable external factors



37


The vesting scale for each measure is:

Companies with ordinary shares included in the ASX100

Up to one-half of the total number of Rights granted may vest based on the relative TSR performance of Qantas in comparison to the ASX100 as follows:

Qantas TSR Performance compared to the ASX100 Vesting Scale

Below 50th percentile Nil vesting

Between 50th and 75th percentile Linear Scale: 50% to 99% vesting

At or above 75th percentile 100% vesting

Global Listed Airlines peer group

Up to one-half of the total number of Rights granted may vest based on the relative TSR performance of Qantas in comparison to the Global Listed Airlines peer group selected by the Board as follows:

Qantas TSR Performance compared to the Global Listed Airlines peer group Vesting Scale

Below 50th percentile Nil vesting

Between 50th and 75th percentile Linear Scale: 50% to 99% vesting

At or above 75th percentile 100% vesting

The Global Listed Airlines peer group has been selected with regard to the level of government involvement, representation of Qantas’ key markets and continuing financial performance. For the 2014–2016 LTIP and 2015–2017 LTIP, the Global Listed Airlines peer group contains the following Airlines: Air Asia, Air France/KLM, Air New Zealand, All Nippon Airways, International Airlines Group (British Airways/Iberia), Cathay Pacific, Delta Airlines, Easyjet, Japan Airlines, LATAM Airlines Group, Lufthansa, Ryanair, Singapore Airlines, Southwest Airlines, Tiger Airways and Virgin Australia. The 2013–2015 LTIP excluded Japan Airlines.

Cessation of Employment

In general, any Rights which have not vested will be forfeited if the relevant Executive ceases employment with the Qantas Group.

In limited circumstances approved by the Board (for example, retirement, employer-initiated terminations (with no record of poor performance), death or total and permanent disablement), a deferred cash payment may be made at the end of the performance period. This payment is determined with regard to the value of the LTIP Rights which would have vested had they not lapsed, and:

– the portion of the performance period that the Executive served prior to termination – the actual level of vesting that is ultimately achieved at the end of the performance period

The Board retains discretion to determine otherwise in appropriate circumstances, which may include retaining some or all of the LTIP Rights.

Allocation Methodology

The number of Rights granted to Executives under the LTIP is calculated on a ‘fair value’ basis’, as follows:

Number of Rights awarded = Base Pay x ‘At Target’ Opportunity / Fair Value of each Right

At each year’s AGM, Qantas seeks shareholder approval for any award of Rights to the CEO. Qantas seeks approval for the specific number of Rights to be awarded and discloses the allocation methodology and the fair value of the Right.

Change of Control In the event of a change of control, and to the extent that Rights have not already lapsed, the Board determines whether the LTIP Rights vest or otherwise.

Disclosure The ‘LTIP vesting’ amount shown in the remuneration outcomes tables is equal to the number of Rights vested multiplied by the Qantas share price at the start of the performance period.

The ‘LTIP share price growth’ amount is equal to the number of Rights vested multiplied by the increase in the Qantas share price over the three year performance period (rather than amortising the accounting value over the relevant performance and service period as per the accounting standards).

Benefits

Non-cash Benefits Non-cash benefits, as disclosed in the remuneration tables, include travel entitlements while employed and other minor benefits.

Travel Travel concessions are provided to permanent Qantas employees, consistent with practice in the airline industry. Travel at concessionary prices is on a sub-load basis, that is, subject to considerable restrictions and limits on availability. It includes specified direct family members or a nominated travel companion.

In addition to this and consistent with practice in the airline industry, Directors and KMP and their eligible beneficiaries are entitled to a number of trips for personal purposes at no cost to the individual.

Post-employment travel concessions are also available to all permanent Qantas employees who qualify through retirement or redundancy. The CEO and KMP and their eligible beneficiaries are also entitled to a number of free trips for personal purposes after ceasing employment. An estimated present value of these entitlements is accrued over the service period of the individual and is disclosed as a post-employment benefit.

38


Superannuation Superannuation includes statutory and salary sacrifice superannuation contributions and is disclosed as a post-employment benefit.

Other Long-term Benefits

The movement in accrual of annual leave and long service leave is included in other long-term benefits. The accounting value of other long-term benefits may be negative, for example where an Executive’s annual leave balance decreases as a result of taking more than the 20 days annual leave they accrued during the year.

2014/2015 Balanced Scorecard Outcomes

For 2014/2015, the Board considered the following key measures of financial and operational performance and the associated targets to be critical indicators of performance and drivers of shareholder value. The performance outcomes for these measures are reflected in the CEO and Executive Management’s remuneration outcomes. The table below summarises performance vs target against each scorecard category under the 2014/15 STIP.

Scorecard Category / Strategic Objective Measures

Scorecard Weighting ‘At Target’ (Range of

Outcomes)Actual

Outcome Comment

Group Profitability

Underlying Profit Before Tax (PBT)

50% (0–100%)

The Underlying PBT result of $975 million for 2014/2015 exceeded the ‘overdrive’ target set by the Board.

Therefore this measure contributed a maximum overdrive outcome of 100 per cent (out of 50 per cent) to the STIP Scorecard.

Qantas Transformation and the Cost Agenda

Deliver transformation benefits Unit Cost Yield (for Qantas International)

20% (0–30%)

The Qantas Transformation to date has delivered over $1,000 million of benefits, exceeding the cumulative target of $800 million announced to the market in May 2014. This also exceeded the revised benefits forecast of $875 million announced in February 2015.

Qantas International achieved its Unit Cost target, while Qantas Domestic and Jetstar Group achieved the threshold level of performance, stretch targets were not achieved.

Qantas International Yield target was exceeded with Qantas International returning to a sustainable profit position in line with the target established in 2011/2012.

People and Operational Safety

People Safety measures Board’s assessment of Operational Safety

10% (0–15%)

Targeted improvements in People Safety metrics were not achieved and therefore there was no contribution under the People Safety measure.

Operational Safety performance for the year was good and therefore there was full contribution under the Operational Safety measure.

Customer Net Promoter Score (NPS) Punctuality Network and frequency advantage

10% (0–15%)

NPS targets for Qantas International, Qantas Domestic and Qantas Frequent Flyer were exceeded. NPS targets were not achieved for some Jetstar brands.

Qantas Domestic continued to be the most on-time of the major domestic airlines for 2014/2015, with over 88.3 per cent of flights on-time.

Qantas Domestic and Jetstar also maintained their network and frequency advantage in the Australian domestic market.

Strategic Initiatives

Qantas Loyalty: EBIT Growth Qantas Frequent Flyer Membership numbers Qantas Loyalty new business initiatives

Investments in Jetstar- branded airlines in Asia Underlying EBIT Strategic milestones

10% (0–15%)

Qantas Loyalty achieved its Earnings Before Interest and Tax (EBIT) growth target for 2014/2015.

Qantas Frequent Flyer membership targets were achieved with more than 700,000 new members joining in 2014/2015.

Qantas Cash, Aquire and Red Planet growth targets were achieved.

Strategic milestones around growth of Jetstar Japan and Jetstar Pacific were achieved, however regulatory approval for Jetstar Hong Kong was not achieved.

2014/15 STIP Scorecard Outcome 100% (0–175%)

140%

Key:



Full (or above target) achievement against targets

Partial achievement against targets

No achievements against targets

39


Additional Descriptions of STIP Scorecard Measures

Group Profitability

Underlying PBT is the key budgetary and financial performance measure for the Qantas Group and therefore is selected as the primary performance measure under the STIP. The objective of measuring and reporting Underlying PBT is to provide a meaningful and consistent representation of the underlying performance of the Group.

The Underlying PBT target is based on the annual financial budget. For reasons of commercial sensitivity, the annual Underlying PBT target is not disclosed.

Underlying PBT is derived by adjusting Statutory PBT for the impacts of AASB 9 Financial Instruments which relate to other reporting periods and items which are identified by management and reported to the chief operating decision-making bodies, as not representing the underlying performance of the business. The determination of these items is made after consideration of their nature and materiality and is applied consistently from period to period.

Items not included in Underlying PBT primarily result from major transformational/restructuring initiatives, transactions involving investments and impairment of assets outside the ordinary course of business.

Qantas Transformation and the Cost Agenda

The Qantas Transformation is targeting $2 billion of benefits by 2016/2017, with original cumulative target of $800 million of these benefits having been targeted to be achieved by 2014/2015. Realisation of benefits under the Qantas Transformation has been selected as a performance measure under the STIP as the transformation initiatives are driving sustainable change in the business and have been fundamental in returning the Qantas Group to profitability.

Unit Cost remains an area of focus across the business and, as a result, the STIP scorecard includes Unit Cost targets for each of Qantas International, Qantas Domestic and Jetstar Group. These targets are derived from the annual financial budget.

For Qantas International and Qantas Domestic, Unit Cost performance is calculated as net underlying expenditure (excluding fuel) divided by each business’ ASKs. Net underlying expenditure is derived from passenger revenue less Underlying EBIT.

For Jetstar Group Consolidated, Unit Cost performance is measured as controllable Unit Cost, which is calculated as total expenses (excluding fuel and costs associated with minority investments in Jetstar-branded airlines in Asia) per ASK.

To ensure that these measures focus on the underlying operating activities and efficiencies, they exclude the impact of fuel price changes and items not included in Underlying PBT as described above.

Yield is a key area of focus for the Qantas International business and was selected as a key measure. Yield is calculated as passenger revenue per ASK.

People and Operational Safety

As safety is always our first priority, the STIP scorecard includes an assessment of both operational and people safety. In addition, the Board retains an overriding discretion to scale down the STIP (or reduce it to zero) in the event of a material aviation safety incident. This is in addition to the Board’s overall discretion over STIP awards. Any such decision would be made in light of the specific circumstances and following the recommendation of the Safety, Health, Environment and Security Committee.

The Safety, Health, Environment and Security Committee performs a combined assessment of people safety performance and operational safety performance.

The objective of the people safety targets is to reduce employee injuries and therefore targets were set across: – Total Recorded Injury Frequency Rate – Lost Work Case Frequency Rate – Duration Rate

Operational safety performance is assessed against outcome-based measures (including operational occurrences that pose a significant threat to the safety of employees and customers) and risk-based lead indicators commonly associated with aviation industry accidents.

Customer Customer Service is measured against NPS targets.

This is a survey-based measure of how strongly our customers promote the services of our businesses in preference to our direct competitors. Individual NPS targets are set for Qantas Domestic, Qantas International, Qantas Frequent Flyer, Jetstar Australia Domestic, Jetstar Australia Long Haul, Jetstar Asia, Jetstar Japan and Jetstar Pacific.

Qantas Domestic targets being the most on-time major Australian domestic airline. Therefore a target comparing on-time performance of Qantas Domestic to the on-time performance of its major Australian domestic competitor is included as a STIP measure. As agreed with and reported to the Bureau of Infrastructure, Transport and Regional Economics (BITRE), punctuality is measured as the number of flights operating on-time (on an on-time departure basis) as a percentage of the total number of flights operated.

Strategic Initiatives

To support the strategic initiatives of strengthening and growing Qantas Loyalty, STIP targets were set to grow Qantas Loyalty EBIT as well as targets to develop and grow new business initiatives including Qantas Cash, Aquire and Red Planet.

To support the strategic initiative of delivering on Jetstar opportunities and partnerships in Asia, EBIT targets and strategic milestone targets were set for each of Jetstar Japan, Jetstar Hong Kong and Jetstar Pacific.

40


Summary of Key Contract Terms as at 30 June 2015Contract Details Alan Joyce Tino La Spina1 Andrew David1 Gareth Evans Lesley Grant Jayne Hrdlicka

Base Pay $2,125,0002 $850,000 $850,000 $1,000,000 $800,0003 $1,000,000

STIP ‘At Target’ opportunity expressed as a % of Base Pay

80% for 2014/2015

50% for2014/2015

50% for 2014/2015

50% for 2014/2015

50% for 2014/2015

50% for 2014/2015

120% for2015/2016

80% for2015/2016

80% for 2015/2016

80% for 2015/2016

80% for 2015/2016

80% for 2015/2016

LTIP ‘At Target’ opportunity expressed as a % of Base Pay

120% for2014/2015

50% for2014/2015

50% for 2014/2015

80% for 2014/2015

55% for 2014/2015

80% for 2014/2015

80% for 2015/2016

50% for2015/2016

50% for 2015/2016

50% for 2015/2016

50% for2015/2016

50% for 2015/2016

Travel entitlements An annual benefit of trips for these Executives and eligible beneficiaries during employment4, at no cost to the individual, as follows:

4 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul 2 Long Haul

12 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul 6 Short Haul

The same benefit is provided for use post-employment, based on the period of service in a senior Executive role within the Qantas Group.

Notice Employment may be terminated by either the Executive or Qantas by providing six months’ written notice5.

Each Executive’s contract includes a provision that limits any termination payment to the statutory limit prescribed under the Corporations Act 2001.

Severance A severance payment of six months’ Base Pay applies where termination is initiated by Qantas5.

1 Following a restructure of the Executive team during the year, Mr La Spina and Mr David commenced in key management roles on 1 March 2015. Awards under the 2015–2017 LTIP were made prior to commencing in a key management role.

2 Base Pay for Mr Joyce is $2,125,000. From 1 January 2014, Mr Joyce elected to forgo five per cent of his Base Pay. Therefore, Base Pay was paid using an annual rate of $2,018,750 from 1 January 2014 to 30 June 2015.

3 Base Pay for Ms Grant is $850,000 from 1 July 2015.4 These flights are not cumulative and will lapse if they are not used during the calendar year in which the entitlement arises.5 Other than for misconduct or unsatisfactory performance.

Risk Management and Clawback Policy

The STIP and the LTIP have design elements that protect against the risk of unintended and unjustified pay outcomes, that is: – Diversity in their performance measures, which as a suite of measures cannot be directly and imprudently influenced by one individual employee

– Clear maximum values specified for scorecard outcomes under the STIP and a challenging vesting scale under the LTIP – Diversity of the timeframes within which performance is measured, with performance under the STIP being measured over one year and performance under the LTIP being measured over three years

– Deferral of a portion of awards under the STIP with a restriction period of up to two years providing an alignment with shareholder interests.

– While formal management shareholding requirements are not imposed, the CEO has a material holding in Qantas shares which at 30 June 2015 was valued at more than four times Base Pay. The potential equity awards under the STIP and the LTIP will assist Executives in maintaining shareholdings in Qantas.

The following Clawback Policy applies in the event of serious misconduct or a material misstatement in Qantas’ financial statements. The Board may:

– Determine that an Executive forgo some or all awards otherwise due under the STIP – Deem some or all STIP shares which are subject to the restriction period to be forfeited – Cause some or all LTIP Rights which have not yet vested to lapse, and/or – In the case of serious misconduct, cancel any post-employment benefits for the relevant employee(s) where possible

The Remuneration Committee has performed a review of the STIP and LTIP terms and conditions and has modified them to better enable Qantas to clawback remuneration in accordance with the policy. These changes will apply to all new plans from 1 July 2015.

Employee Share Trading Policy

The Qantas Code of Conduct and Ethics contains Qantas’ Employee Share Trading Policy (Policy).

The Policy prohibits employees from dealing in Qantas securities (or securities of other listed entities) while in possession of material non-public information relevant to the entity.

In addition, nominated employees (including KMP) are: – Prohibited from dealing in Qantas securities (or the securities of any Qantas Group listed entity) during defined closed periods – Required to comply with ‘request to deal’ procedures prior to dealing in Qantas securities (or the securities of any Qantas Group listed entity) outside of defined closed periods

– Prohibited from hedging or entering into any margin lending arrangement, or entering into any other encumbrances over the securities of Qantas (or the securities of any Qantas Group listed entity) at any time



41


Remuneration Mix

The Base Pay and ‘At Target’ STIP and LTIP opportunities are set with reference to external benchmark market data including comparable roles in other listed Australian companies and international airlines. The ‘At Target’ STIP and LTIP opportunities for the CEO and KMP are detailed in the Summary of Key Contract Terms on page 40.

For 2014/2015, the Board changed the remuneration mix for the CEO and Executive Management to further align incentives with the immediate priorities of the transformation agenda. The three year performance period of the 2015–2017 LTIP aligns with the timeframe for achieving the $2 billion program benefits due for completion by the end of 2016/2017.

This change in pay mix involved a decrease in the STIP opportunity and an increase in the LTIP opportunity for each Executive. The pay mix changes that apply to the CEO and KMP for 2014/2015 are also detailed in the Summary of Key Contract Terms on page 40. There is no increase to the total ‘At Target’ remuneration as a result of these changes as the increase in LTIP opportunity is offset by a decrease in STIP opportunity.

At Qantas, the ‘At Target’ STIP and LTIP awards are normally expressed as a percentage of Base Pay, however, for the purpose of the following remuneration mix tables, Base Pay, STIP and LTIP opportunities are expressed as a percentage of total ‘At Target’ pay.

Target Remuneration Mix for 2014/2015Base Pay

%STIP

%LTIP

%

Alan Joyce 33 27 40

Tino La Spina 50 25 25

Andrew David 50 25 25

Gareth Evans 43 22 35

Lesley Grant 49 24 27

Jayne Hrdlicka 43 22 35

Simon Hickey 43 22 35

Lyell Strambi 43 22 35

The target remuneration mix does not match the statutory remuneration mix for 2014/2015, as: – Actual STIP and LTIP outcomes each year differ from the ‘At Target’ level – Statutory reward mix is calculated on an accrual basis in accordance with accounting standards, so each year’s statutory remuneration includes a portion of the value of share-based payments awarded in previous years. A portion of current year awards are also deferred over future periods where there are performance conditions or restriction periods

Performance-related Remuneration

Cash-based Equity Settled Share-based

Statutory Remuneration Mix

Base Pay & Other

%

Cash Incentives

%STIP

%LTIP

%

Alan Joyce 32 28 6 34

Tino La Spina 64 22 3 11

Andrew David 49 21 18 12

Gareth Evans 44 21 5 30

Lesley Grant 49 24 6 21

Jayne Hrdlicka 44 21 5 30

Simon Hickey 59 19 1 21

Lyell Strambi 57 20 2 21

42



Qantas Financial Performance History

To provide further context on Qantas’ performance, the following graphs outline a five-year history of key financial metrics.

1 Underlying Profit Before Tax (PBT) is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group. Statutory Profit After Tax for 2014/2015 was $560 million (2014: ($2.8) billion, 2013: $2 million, 2012: ($244) million and 2011: $249 million).

7) PERFORMANCE-RELATED REMUNERATION

Performance Remuneration Affecting Future Periods

The fair value of share-based payments granted is amortised over the service period and therefore remuneration in respect of these awards may be reported in future years. The following table summarises the maximum value of these awards that will be reported in the statutory remuneration tables in future years, assuming all performance conditions are met. The minimum value of these awards is nil, should performance conditions not be satisfied.

Future Expense by Plan Future Expense by Financial Year

Deferred Shares LTIP Awards

Executives2012/2013

$’0002014/2015

$’0002014–20161

$’0002015–20172

$’000Total

$’0002016

$’0002017

$’0002018

$’000Total

$’000

Alan Joyce 20 651 670 2,409 3,750 2,102 1,413 235 3,750

Tino La Spina – 98 48 256 402 217 159 26 402

Andrew David – 599 55 298 952 577 345 30 952

Gareth Evans 6 184 197 678 1,065 601 398 66 1,065

Lesley Grant 5 140 79 373 597 320 237 40 597

Jayne Hrdlicka 6 176 197 677 1,056 596 394 66 1,056

1 The number of Rights granted under the 2014–2016 LTIP on 18 October 2013 were determined using the fair value of a Right on 1 July 2013 ($0.790 per Right), being the start of the performance period. For accounting purposes, accounting standards require the share-based payment expense to be calculated using the fair value of a Right on the grant date ($0.830 per Right).

2 The number of Rights granted under the 2015–2017 LTIP (on 24 October 2014 for Mr Joyce and 15 September 2015 for other Executives) were determined using the fair value of a Right on 1 July 2014 ($0.785 per Right), being the start of the performance period. For accounting purposes, accounting standards require the share-based payment expense to be calculated using the fair value of a Right on the grant date ($0.970 per Right for Mr Joyce and $0.972 for other Executives).


QANTAS TSR PERFORMANCE (%)

150%130%110%

90%70%50%30%10%

(10%)(30%)(50%) (6.7)

150.8

(16.4) (41.6)

25.62010/2011

2011/2012

2012/2013

2013/2014

2014/2015

600

(600)

400

(400)

200

(200)

8001,0001,200

02010/2011

2011/2012

UNDERLYING PROFIT BEFORE TAX ($M)

552 95186

(646)

975

2012/2013

2013/2014

2014/2015

1,300

1,600

1,900

2,200

1,0002010/2011

2011/2012

OPERATING CASHFLOW ($M)

1,782 1,810

1,417

1,069

2,048

2012/2013

2013/2014

2014/2015

0

(5)

5

(15)

15

25

(128.5)

25.4

11.0

(10.8)

0.042010/2011

2011/2012

2012/2013

2013/2014

2014/2015

EARNINGS PER SHARE (CENTS)

43


Equity Instruments Held by Key Management Personnel

Set out in the following tables are the holdings of equity instruments granted as remuneration to the KMP by Qantas. Non-Executive Directors do not receive any remuneration in the form of share-based payments, although they may salary sacrifice a portion of their Directors’ fees to purchase shares.

(i) Short Term Incentive Plan (STIP)Number of Shares

Key Management Personnel1 1 JulyCommenced as

KMP Granted ForfeitedVested and

TransferredCeased

Employment 30 June

Alan Joyce 2015

2014

284,769

375,014

–

–

–

284,769

–

–

–

(375,014)

–

–

284,769

284,769

Gareth Evans 2015

2014

148,227

174,278

–

–

–

85,607

–

–

(62,620)

(111,658)

–

–

85,607

148,227

Lesley Grant 2015

2014

108,431

107,189

–

–

–

65,505

–

–

(42,926)

(64,263)

–

–

65,505

108,431

Jayne Hrdlicka 2015

2014

128,244

85,784

–

–

–

78,164

–

–

(50,080)

(35,704)

–

–

78,164

128,244

Simon Hickey2 ceased as KMP 28 February 2015

2015

2014

127,398

158,353

–

–

–

78,164

–

–

(127,398)

(109,119)

–

–

n/a

127,398

Lyell Strambi3 ceased as KMP 28 February 2015

2015

2014

141,662

159,373

–

–

–

81,889

–

–

(141,662)

(99,600)

–

–

n/a

141,662

1 Mr La Spina and Mr David have no holding in STIP as at 30 June 2015.2 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015. 3 Mr Strambi ceased as a KMP and ceased employment with Qantas on 28 February 2015.

One-third of the 2011/12 STIP awards (granted on 22 August 2012) were delivered to participants in deferred shares subject to a two year restriction period. The restriction period on these shares ended during 2014/2015.

One-third of the 2012/13 STIP awards (granted on 6 September 2013) were delivered to participants in deferred shares that are subject to a two year restriction period. The restriction period on these shares applied throughout 2014/2015.

(ii) Long Term Incentive Plan (LTIP) Number of Rights

Key Management Personnel 1 JulyCommenced as

KMP GrantedLapsed/

ForfeitedVested and

TransferredCeased

Employment 30 June3

Alan Joyce 2015

2014

6,401,000

5,334,000

–

–

3,248,000

2,151,000

(1,675,000)

(1,084,000)

–

–

–

–

7,974,000

6,401,000

Tino La Spina commenced as KMP 1 March 2015

2015

2014

n/a

n/a

721,500

n/a

–

n/a

–

n/a

–

n/a

–

n/a

721,500

n/a

Andrew David commenced as KMP 1 March 2015

2015

2014

n/a

n/a

823,000

n/a

–

n/a

–

n/a

–

n/a

–

n/a

823,000

n/a

Gareth Evans 2015

2014

1,865,731

1,351,731

–

–

1,019,000

633,000

(456,000)

(119,000)

–

–

–

–

2,428,731

1,865,731

Lesley Grant 2015

2014

747,000

566,000

–

–

561,000

253,000

(191,000)

(72,000)

–

–

–

–

1,117,000

747,000

Jayne Hrdlicka 2015

2014

1,581,000

948,000

–

–

1,019,000

633,000

(191,000)

–

–

–

–

–

2,409,000

1,581,000


2015

2014

1,620,545

1,091,545

–

–

1,019,000

633,000

(2,606,000)

(104,000)

(33,545)

–

–

–

n/a

1,620,545


2015

2014

1,846,000

1,332,000

–

–

1,019,000

633,000

(2,865,000)

(119,000)

–

–

–

–

n/a

1,846,000

1 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015. All unvested Rights (2,606,000) lapsed on termination. 2 Mr Strambi ceased as a KMP and ceased employment with Qantas on 28 February 2015. All unvested Rights (2,865,000) lapsed on termination. 3 The 30 June 2015 balance includes the Rights granted under the 2013–2015 LTIP which vested at 85 per cent and converted into shares following the performance hurdle testing

conducted as at 30 June 2015.

44



The Rights granted during the year (granted on 24 October 2014 for Mr Joyce and 15 September 2014 for other Executives) were under the 2015–2017 LTIP, which will be tested against the performance hurdles as at 30 June 2017. The fair value of a Right on the grant date was $0.970 for Mr Joyce and $0.972 for other Executives.

100 per cent of Rights under the 2012–2014 LTIP (granted on 28 October 2011 for Mr Joyce and 23 August 2011 for other Executives) lapsed during the year following testing of the performance hurdles as at 30 June 2014.

85 per cent of Rights under the 2013–2015 LTIP vested following the testing of performance hurdles as at 30 June 2015.

100 per cent of Rights awarded to Mr Hickey and Mr Strambi under the 2013–2015 LTIP, the 2014–2016 LTIP and the 2015–2017 LTIP lapsed on termination of employment. Consistent with the approach to LTIP awards on termination of employment outlined on page 37, Mr Hickey and Mr Strambi may become eligible for a deferred cash payment to be made at the end of the respective performance periods for these awards. Any payment would have regard to:

– The value of the LTIP Rights which would have vested had they not lapsed – The part of the performance periods that Mr Hickey and Mr Strambi served prior to termination – The actual level of vesting that is ultimately achieved at the end of performance periods

(iii) Performance Share Plan (PSP)Number of Shares

Key Management Personnel 1 JulyCommenced

as KMP Granted Forfeited TransferredCeased

Employment 30 June

Gareth Evans 2015

2014

36,621

36,621

–

–

–

–

–

–

–

–

–

–

36,621

36,621

Lesley Grant 2015

2014

64,989

64,989

–

–

–

–

–

–

–

–

–

–

64,989

64,989


2015

2014

49,000

90,213

–

–

–

–

–

–

(49,000)

(41,213)

–

–

n/a

49,000

Lyell Strambi2 ceased as KMP 28 February 2015 2014 75,000 – – – (75,000) – –

1 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015. 2 Mr Strambi ceased as a KMP and ceased employment with Qantas on 28 February 2015.

The above shares are vested and available to call.

(iv) Retention Plan (RP)Number of Shares

Key Management Personnel 1 JulyCommenced

as KMP Granted Forfeited TransferredCeased

Employment 30 June


2015

2014

200,000

400,000

–

–

–

–

–

–

(200,000)

(200,000)

–

–

n/a

200,000

1 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015.

(v) Deferred Share Plan (DSP)Number of Shares

Key Management Personnel 1 JulyCommenced as

KMP Granted Forfeited TransferredCeased

Employment 30 June

Andrew David1 commenced as KMP 1 March 2015

2015

2014

n/a

n/a

588,482

n/a

–

n/a

–

n/a

–

n/a

–

n/a

588,482

n/a

1 The deferred shares were awarded to Mr David prior to commencing as a KMP and are subject a restriction period until 31 December 2016.


45


(vi) Equity Holdings and Transactions

KMPs or their related parties directly, indirectly or beneficially held shares in the Qantas Group as detailed in the table below:

Key Management Personnel – Executives

Interest in Shares as at

1 July 2014Commenced

as KMPAwarded as

RemunerationRights Converted

to SharesOther

Change1Ceased

Employment

Interest in Shares as at 30 June 2015

Alan Joyce 3,190,971 – – – – – 3,190,971

Tino La Spina commenced as KMP 1 March 2015

n/a 30,992 – – – – 30,992

Andrew David commenced as KMP 1 March 2015

n/a 588,482 – – – – 588,482

Gareth Evans 502,749 – – – (300,000) – 202,749

Lesley Grant 316,183 – – – (100,000) – 216,183

Jayne Hrdlicka 196,948 – – – – – 196,948


376,398 – – 33,545 – 409,943 n/a


216,862 – – – (134,773) 82,089 n/a

1 Other change includes shares purchased, sold or forfeited.2 Mr Hickey ceased as a KMP on 28 February 2015 and ceased employment with Qantas on 15 May 2015. The total equity holding for Mr Hickey as at 28 February 2015 was 409,943.3 Mr Strambi ceased as a KMP and ceased employment with Qantas on 28 February 2015.

Other than share-based payment compensation, all equity instrument transactions between the KMP, including their related parties, and Qantas during the year have been on an arm’s length basis.

Loans and Other Transactions with Key Management Personnel

No KMP or their related parties held any loans from the Qantas Group during or at the end of the year ended 30 June 2015 or prior year.

A number of KMPs and their related parties have transactions with the Qantas Group. All transactions are conducted on normal commercial arm’s length terms.

8) NON-EXECUTIVE DIRECTOR FEES

Non-Executive Director fees are determined within an aggregate Non-Executive Directors’ fee pool limit. An annual total fee pool of $2.75 million (excluding industry standard travel entitlements received) was approved by shareholders at the 2013 AGM.

Total Non-Executive Directors’ remuneration (excluding industry standard travel entitlements received) for the year ended 30 June 2015 was $1.99 million (2014: $2.14 million), which is within the approved annual fee pool.

Non-Executive Directors’ remuneration reflects the responsibilities of Non-Executive Directors. Fees are benchmarked against Non-Executive Director fees of S&P/ASX50 companies.

The Board base fee and Committee base fee are presented in the table below. From 1 January 2014 until 30 June 2015, all Directors elected to forgo five per cent of both their base fee and Committee fee.

Board Committees1

Chairman2 Member Chairman Member

Board Fees3 $560,000 $144,000 $58,000 $29,000

1 Committees are the Audit Committee, Remuneration Committee, Nominations Committee and Safety, Health, Environment and Security Committee.2 The Chairman does not receive any additional fees for serving on or chairing any Board Committee.3 From 1 January 2014, all Directors elected to forgo five per cent of their fees. From 1 January 2014 until 30 June 2015, the Chairman was paid based on an annual fee of $532,000, other

Non-Executive Directors were paid based on an annual fee of $137,000, each Committee Chair was paid based on an annual fee of $55,000 and each Committee member was paid based on an annual fee of $27,500.

Non-Executive Directors do not receive any performance-related remuneration.

Overseas-based Non-Executive Directors are paid a travel allowance when travelling on international journeys of greater than six hours to attend Board and Committee Meetings or Board-related activities requiring participation of all Directors.

All Non-Executive Directors and eligible beneficiaries receive travel entitlements. The Chairman is entitled to four long haul trips and 12 short haul trips each calendar year and all other Non-Executive Directors are entitled to two long haul trips and six short haul trips each calendar year. These flights are not cumulative and will lapse if they are not used during the calendar year in which the entitlement arises.

Post-employment, the Chairman is entitled to two long haul trips and six short haul trips for each year of service and all other Non-Executive Directors are entitled to one long haul trip and three short haul trips for each year of service. The accounting value of the travel benefit is captured in the remuneration table (as a non-cash benefit for travel during the year and as a post-employment benefit).

46



Remuneration for the Year Ended 30 June 2015 – Non-Executive DirectorsShort-term Employee Benefits Post-employment Benefits

Base Pay (Cash)

Non-cash Benefits Sub-total Superannuation Travel Sub-total Total

Leigh Clifford Chairman

2015

2014

497

511

43

37

540

548

35

35

25

23

60

58

600

606

Maxine Brenner1 Non-Executive Director

2015

2014

175

138

20

16

195

154

17

13

12

11

29

24

224

178

Richard Goodmanson2 Non-Executive Director

2015

2014

250

255

34

14

284

269

–

–

12

11

12

11

296

280

Jacqueline Hey1 Non-Executive Director

2015

2014

150

129

9

11

159

140

14

12

12

11

26

23

185

163

Garry Hounsell3 Non-Executive Director ceased as KMP 25 February 2015

2015

2014

132

207

54

24

186

231

13

18

12

11

25

29

211

260

William Meaney2 Non-Executive Director

2015

2014

222

213

–

–

222

213

–

–

12

11

12

11

234

224

Paul Rayner Non-Executive Director

2015

2014

201

199

38

19

239

218

19

18

12

11

31

29

270

247

Todd Sampson4 Non-Executive Director commenced as KMP 25 February 2015

2015

2014

52

–

16

–

68

–

5

–

12

–

17

–

85

–

Barbara Ward Non-Executive Director

2015

2014

193

179

13

24

206

203

18

18

12

11

30

29

236

232

Total 2015

2014

1,872

1,831

227

145

2,099

1,976

121

114

121

100

242

214

2,341

2,190

1 2013/2014 remuneration reflects the period served by Ms Brenner and Ms Hey as Non-Executive Directors from 29 August 2013 to 30 June 2014.2 Mr Goodmanson and Mr Meaney received travel allowances of $30,000 each during 2014/2015 (2014: $30,000 for Mr Goodmanson and $25,000 for Mr Meaney). These amounts were

included in their fees (cash).3 2014/2015 remuneration reflects the period served by Mr Hounsell as Non-Executive Director from 1 July 2014 to 25 February 2015.4 2014/2015 remuneration reflects the period served by Mr Sampson as a Non-Executive Director from 25 February 2015 to 30 June 2015.

Equity Holdings and Transactions

Non-executive director KMP or their related parties directly, indirectly or beneficially held shares in the Qantas Group as detailed in the table below:

Key Management Personnel – Non-Executive Directors

Interest in Shares as at

1 July 2014Commenced

as KMPOther

Change1 Ceased as KMP

Interest in Shares as at 30 June 2015

Leigh Clifford 251,622 – – – 251,622

Maxine Brenner – – 21,900 – 21,900

Richard Goodmanson 20,000 – – – 20,000

Jacqueline Hey – – 30,000 – 30,000

Garry Hounsell ceased as KMP 25 February 2015

80,000 – – 80,000 n/a

William Meaney – – – – –

Paul Rayner 71,622 – 100,000 – 171,622

Todd Sampson commenced as KMP 25 February 2015

n/a – 5,000 – 5,000

Barbara Ward 47,597 – – – 47,597

1 Other change includes shares purchased or sold.

All equity instrument transactions between the non-executive director KMP, including their related parties, and Qantas during the year have been on an arm’s length basis.


47


ENVIRONMENTAL OBLIGATIONS

The Qantas Group’s operations are subject to a range of Commonwealth, State, Territory and international environmental legislation. The Qantas Group is committed to environmental sustainability with high standards for environmental performance. The Board places particular focus on the environmental aspects of its operations through the Safety, Health, Environment and Security Committee, which is responsible for monitoring compliance with these regulations and reporting to the Board.

The Directors are satisfied that adequate systems are in place for the management of the Qantas Group’s environmental exposures and environmental performance. The Directors are also satisfied that relevant licences and permits are held and that appropriate monitoring procedures are in place to ensure compliance with those licences and permits. Any significant environmental incidents are reported to the Board.

The Directors are not aware of any breaches of any environmental legislation or of any significant environmental incidents during the year which are material in nature.

INDEMNITIES AND INSURANCE

Under the Qantas Constitution, Qantas indemnifies, to the extent permitted by law, each Director and Company Secretary of Qantas against any liability incurred by that person as an officer of Qantas.

The Directors and the Company Secretaries listed on page 25 and individuals who formerly held any of these positions have the benefit of the indemnity in the Qantas Constitution. Members of Qantas’ Executive Management team and certain former members of the Executive Management team have the benefit of an indemnity to the fullest extent permitted by law and as approved by the Board. In respect to non-audit services, KPMG, Qantas’ auditor, has the benefit of an indemnity to the extent KPMG reasonably relies on information provided by Qantas which is false, misleading or incomplete. No amount has been paid under any of these indemnities during 2014/2015 or to the date of this Report.

Qantas has insured against amounts which it may be liable to pay on behalf of Directors and officers or which it otherwise agrees to pay by way of indemnity.

During the year, Qantas paid a premium for Directors’ and Officers’ liability insurance policies, which cover all Directors and officers of the Qantas Group. Details of the nature of the liabilities covered, and the amount of the premium paid in respect of the Directors’ and Officers’ insurance policies, are not disclosed, as disclosure is prohibited under the terms of the contracts.

NON-AUDIT SERVICES

During the year, Qantas’ auditor KPMG has performed certain other services in addition to its statutory duties. The Directors are satisfied that:

a. The non-audit services provided during 2014/2015 by KPMG as the external auditor were compatible with the general standard of independence for auditors imposed by the Corporations Act 2001

b. Any non-audit services provided during 2014/2015 by KPMG as the external auditor did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

– KPMG services have not involved partners or staff acting in a managerial or decision-making capacity within the Qantas Group or being involved in the processing or originating of transactions

– KPMG non-audit services have only been provided where Qantas is satisfied that the related function or process will not have a material bearing on the audit procedures

– KPMG partners and staff involved in the provision of non-audit services have not participated in associated approval or authorisation processes

– A description of all non-audit services undertaken by KPMG and the related fees has been reported to the Board to ensure complete transparency in relation to the services provided

– The declaration required by section 307C of the Corporations Act 2001 confirming independence has been received from KPMG

A copy of the lead auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is included on page 48.

Details of the amounts paid to KPMG for audit and non-audit services provided during the year are set out in Note 8 to the Financial Statements.

48


LEAD AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001

To: the Directors of Qantas Airways Limited

I declare that, to the best of my knowledge and belief, in relation to the audit for the financial year ended 30 June 2015, there have been:

i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

ii. no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG Duncan McLennan Sydney Partner

28 August 2015

Rounding

Qantas is a company of a kind referred to in Australian Securities and Investments Commission (ASIC) Class Order 98/100 dated 10 July 1998. In accordance with the Class Order, amounts in this Directors’ Report and the Financial Report have been rounded to the nearest million dollars unless otherwise stated.

Signed pursuant to a Resolution of the Directors:

Leigh Clifford Alan Joyce Chairman Chief Executive Officer

28 August 2015 28 August 2015


KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Limited liability by a scheme approved under Professional Standards Legislation

49


CONTENTS

Consolidated Income Statement 50

Consolidated Statement of Comprehensive Income 51

Consolidated Balance Sheet 52

Consolidated Statement of Changes in Equity 53

Consolidated Cash Flow Statement 55

Notes to the Financial Statements

1. Reporting Entity 56

2. Critical Accounting Estimates and Judgements 56

3. Underlying Profit/(Loss) Before Tax, Operating Segments and Return on Invested Capital 56

4. Other Revenue/Income and Other Expenditure 61

5. Net Finance Costs 62

6. Income Tax 62

7. Earnings/(Loss) per Share 63

8. Auditor’s Remuneration 64

9. Shareholder Distributions 64

10. Cash and Cash Equivalents 64

11. Receivables 65

12. Inventories 65

13. Assets Classified as Held for Sale 65

14. Investments Accounted for Under the Equity Method 65

15. Property, Plant and Equipment 66

16. Intangible Assets 67

17. Deferred Tax Assets/(Liabilities) 67

18. Other Assets 68

19. Payables 68

20. Revenue Received in Advance 69

21. Interest-bearing Liabilities 69

22. Provisions 70

23. Capital and Reserves 71

24. Impairment Testing of Cash Generating Units 72

25. Share-based Payments 72

26. Derivatives and Hedging Instruments 73

27. Notes to the Cash Flow Statement 76

28. Acquisition and Disposal of Controlled Entities 77

29. Commitments 77

30. Contingent Liabilities 78

31. Superannuation 79

32. Deed of Cross Guarantee 81

33. Related Parties 83

34. Financial Risk Management 83

35. Events Subsequent to Balance Date 87

36. Parent Entity Disclosures for Qantas Airways Limited (Qantas) 87

37. Significant Accounting Policies 89

38. Application of New or Revised Accounting Standards 99

39. New Standards and Interpretations Not Yet Adopted 100

Directors’ Declaration 101

Independent Auditor’s Report 102

FINANCIAL REPORTFOR THE YEAR ENDED 30 JUNE 2015

50


Qantas Group

Notes2015

$M2014

$M

REVENUE AND OTHER INCOME

Net passenger revenue 13,667 13,242

Net freight revenue 936 955

Other 4 1,213 1,155

Revenue and other income 15,816 15,352

EXPENDITURE

Manpower and staff related 3,604 3,770

Fuel 3,937 4,461

Aircraft operating variable 3,206 3,303

Depreciation and amortisation 1,096 1,422

Impairment of cash generating unit – 2,560

Impairment of specific assets 28 387

Non-cancellable aircraft operating lease rentals 495 520

Share of net loss of investments accounted for under the equity method 14 40 66

Other 4 2,362 2,635

Expenditure 14,768 19,124

Statutory profit/(loss) before income tax expense and net finance costs 1,048 (3,772)

Finance income 5 90 82

Finance costs 5 (349) (286)

Net finance costs 5 (259) (204)

Statutory profit/(loss) before income tax expense 789 (3,976)

Income tax (expense)/benefit 6 (229) 1,133

Statutory profit/(loss) for the year 560 (2,843)

Attributable to:

Members of Qantas 557 (2,843)

Non-controlling interests 3 –


EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO MEMBERS OF QANTAS

Basic/diluted earnings/(loss) per share (cents) 7 25.4 (128.5)

The above Consolidated Income Statement should be read in conjunction with the accompanying notes.

CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 30 JUNE 2015

51


Qantas Group

2015 $M

2014 $M


Items that are or may be reclassified to profit or loss

Effective portion of changes in fair value of cash flow hedges, net of tax (44) (106)

Transfer of hedge reserve to the Consolidated Income Statement, net of tax1 91 (70)

Recognition of effective cash flow hedges on capitalised assets, net of tax (2) (19)

Time value of options, net of tax2 (95) –

Foreign currency translation of controlled entities 5 2

Foreign currency translation of investments accounted for under the equity method 5 1

Items that will not subsequently be reclassified to profit or loss

Defined benefit actuarial gains, net of tax 38 113

Other comprehensive loss for the year (2) (79)

Total comprehensive income/(loss) for the year 558 (2,922)

Total comprehensive income/(loss) attributable to:

Members of Qantas 554 (2,922)

Non-controlling interests 4 –


1 These amounts were allocated to revenue of $(40) million (2014: $(110) million), fuel expenditure of $170 million (2014: $10 million), and income tax expense of $(39) million (2014: $30 million) in the Consolidated Income Statement.

2 The net fair value movement in time value of options relating to cash flow hedges.

The above Consolidated Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 30 JUNE 2015

52


Qantas Group

Notes2015

$M2014

$M

CURRENT ASSETS

Cash and cash equivalents 10 2,908 3,001

Receivables 11 959 1,196

Other financial assets 26 613 172

Inventories 12 322 317

Assets classified as held for sale 13 136 134

Other 18 111 112

Total current assets 5,049 4,932

NON-CURRENT ASSETS

Receivables 11 134 158


Investments accounted for under the equity method 14 134 143

Property, plant and equipment 15 10,715 10,500

Intangible assets 16 803 741

Deferred tax assets 17 333 548

Other 18 313 262

Total non-current assets 12,481 12,386

Total assets 17,530 17,318

CURRENT LIABILITIES

Payables 19 1,881 1,851

Revenue received in advance 20 3,584 3,406

Interest-bearing liabilities 21 771 1,210

Other financial liabilities 26 416 182

Provisions 22 818 876

Total current liabilities 7,470 7,525

NON-CURRENT LIABILITIES

Revenue received in advance 20 1,359 1,183

Interest-bearing liabilities 21 4,791 5,273

Other financial liabilities 26 68 66

Provisions 22 395 405

Total non-current liabilities 6,613 6,927

Total liabilities 14,083 14,452

Net assets 3,447 2,866

EQUITY

Issued capital 23 4,630 4,630

Treasury shares (7) (16)

Reserves 23 (66) (81)

Retained earnings (1,115) (1,671)

Equity attributable to the members of Qantas 3,442 2,862

Non-controlling interests 5 4

Total equity 3,447 2,866

The above Consolidated Balance Sheet should be read in conjunction with the accompanying notes.

CONSOLIDATED BAL ANCE SHEET AS AT 30 JUNE 2015

53


30 June 2015 Qantas Group $M

Issued Capital

Treasury Shares

Employee Compen-

sation Reserve

Hedge Reserve

Foreign Currency

Translation Reserve

Deferred Benefit

ReserveRetained Earnings

Non- controlling

InterestsTotal

Equity

Balance as at 1 July 2014 4,630 (16) 32 (72) (41) – (1,671) 4 2,866

TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR

Statutory profit for the year – – – – – – 557 3 560

Other comprehensive income/(loss)

Effective portion of changes in fair value of cash flow hedges, net of tax – – – (44) – – – – (44)

Transfer of hedge reserve to the Consolidated Income Statement, net of tax – – – 91 – – – – 91

Recognition of effective cash flow hedges on capitalised assets, net of tax – – – (2) – – – – (2)

Time value of options, net of tax – – – (95) – – – – (95)

Defined benefit actuarial gains, net of tax – – – – – 38 – – 38

Foreign currency translation of controlled entities – – – – 4 – – 1 5

Foreign currency translation of investments accounted for under the equity method – – – – 5 – – – 5

Total other comprehensive income/(loss) – – – (50) 9 38 – 1 (2)

Total comprehensive income/(loss) for the year – – – (50) 9 38 557 4 558

TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY

Contributions by and distributions to owners

Treasury shares acquired – (1) – – – – – – (1)

Share-based payments – – 29 – – – – – 29

Shares vested and transferred to employees – 10 (8) – – – (2) – –

Share-based payments unvested and lapsed – – (6) – – – 1 – (5)

Dividends paid to non-controlling interests – – – – – – – (4) (4)

Total contributions by and distributions to owners – 9 15 – – – (1) (4) 19

Change in ownership interest in subsidiaries

Deconsolidation of controlled entity – – – – 3 – – – 3

Acquisition of non-controlling interest – – – – – – – 1 1

Total change in ownership interest – – – – 3 – – 1 4

Total transactions with owners – 9 15 – 3 – (1) (3) 23

Balance as at 30 June 2015 4,630 (7) 47 (122) (29) 38 (1,115) 5 3,447

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 2015

54


30 June 2015 Qantas Group $M

Issued Capital

Treasury Shares

Employee Compen-

sation Reserve

Hedge Reserve

Deferred Benefit

ReserveRetained Earnings

Non- controlling

InterestsTotal

Equity

Balance as at 1 July 2013 4,693 (43) 49 123 (44) 1,057 5 5,840

TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR

Statutory loss for the year – – – – – (2,843) – (2,843)

Other comprehensive (loss)/income

Effective portion of changes in fair value of cash flow hedges, net of tax – – – (106) – – – (106)

Transfer of hedge reserve to the Consolidated Income Statement, net of tax – – – (70) – – – (70)

Recognition of effective cash flow hedges on capitalised assets, net of tax – – – (19) – – – (19)

Defined benefit actuarial gains, net of tax – – – – – 113 – 113

Foreign currency translation of controlled entities – – – – 2 – – 2

Foreign currency translation of investments accounted for under the equity method – – – – 1 – – 1

Total other comprehensive (loss)/income – – – (195) 3 113 – (79)

Total comprehensive (loss)/income for the year – – – (195) 3 (2,730) – (2,922)

TRANSACTIONS WITH OWNERS RECORDED DIRECTLY IN EQUITY

Contributions by and distributions to owners

Shares bought back1 (63) – – – – – – (63)

Share-based payments – – 12 – – – – 12

Shares vested and transferred to employees – 27 (23) – – (4) – –

Share-based payments unvested and lapsed – – (6) – – 6 – –

Dividends paid – – – – – – (1) (1)

Total contributions by and distributions to owners (63) 27 (17) – – 2 (1) (52)

Total transactions with owners (63) 27 (17) – – 2 (1) (52)

Balance as at 30 June 2014 4,630 (16) 32 (72) (41) (1,671) 4 2,866

1 45,415,538 shares were bought back and cancelled during the year ended 30 June 2014.

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015

55


Qantas Group

Notes2015

$M2014

$M

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 17,239 16,720

Cash payments to suppliers and employees (excluding cash payments to employees for redundancies and related costs) (14,747) (15,288)

Cash generated from operations 2,492 1,432

Cash payments to employees for redundancies and related costs (251) (185)

Interest received 85 74

Interest paid (281) (254)

Dividends received from investments accounted for under the equity method 5 4

Income taxes paid (2) (2)

Net cash from operating activities 27 2,048 1,069

CASH FLOWS FROM INVESTING ACTIVITIES

Payments for property, plant and equipment and intangible assets (1,359) (1,161)

Interest paid and capitalised on qualifying assets 5 (17) (34)

Payments for the acquisition of controlled entities, net of cash acquired (7) –

Payments for investments accounted for under the equity method (58) (72)

Net receipts for aircraft assigned to investments accounted for under the equity method1 266 8

Proceeds from disposal of property, plant and equipment 194 141

Proceeds from disposal of controlled entities, net of cash disposed 28 70

Net proceeds from/(loans to) investments accounted for under the equity method 9 (21)

Net cash used in investing activities (944) (1,069)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments for shares bought back – (63)

Payments for treasury shares (1) –

Proceeds from borrowings 796 717

Repayments of borrowings (2,276) (1,027)

Proceeds from sale and finance leaseback of non-current assets 275 564

Net payments for aircraft security deposits and hedges related to debt (8) (17)

Dividends paid to non-controlling interests (4) (1)

Net cash (used in)/provided by financing activities (1,218) 173

Net (decrease)/increase in cash and cash equivalents held (114) 173

Cash and cash equivalents at the beginning of the year 3,001 2,829

Effects of exchange rate changes on cash and cash equivalents 21 (1)

Cash and cash equivalents at the end of the year 10 2,908 3,001

1 Net receipts for aircraft assigned to Jetstar Japan Co. Ltd and Jetstar Hong Kong Airways Limited.

The above Consolidated Cash Flow Statement should be read in conjunction with the accompanying notes.

CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 30 JUNE 2015

56


1. REPORTING ENTIT YQantas Airways Limited (Qantas) is a for-profit company limited by shares, incorporated in Australia whose shares are publicly traded on the Australian Securities Exchange (ASX) and which is subject to the operation of the Qantas Sale Act 1992.

The Consolidated Financial Statements for the year ended 30 June 2015 comprise Qantas and its controlled entities (together referred to as the Qantas Group) and the Qantas Group’s interest in investments accounted for under the equity method.

Qantas has five subsidiaries that are material to the Qantas Group in 2015 and 2014. The Parent has majority voting rights in respect of each of the material subsidiaries. Materiality has been assessed based on the contribution of statutory profit/(loss) to the Qantas Group.

The Consolidated Financial Statements of Qantas for the year ended 30 June 2015 were authorised for issue in accordance with a resolution of the Directors on 28 August 2015.

(A) STATEMENT OF COMPLIANCE

The Consolidated Financial Statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and with the Corporations Act 2001. The Consolidated Financial Statements also comply with International Financial Reporting Standards and interpretations (IFRICs) adopted by the International Accounting Standards Board (IASB).

(B) BASIS OF PREPARATION

The Consolidated Financial Statements are presented in Australian dollars, which is the functional currency of the Qantas Group, and have been prepared on the basis of historical cost except for the following material items in the Consolidated Balance Sheet:

– Derivatives at fair value through profit and loss are measured at fair value – Assets classified as held for sale are measured at lower of cost and fair value less costs to sell – Net defined benefit asset/(liability) are measured at fair value of plan assets less the present value of the defined benefit obligation

Qantas is a company of the kind referred to in Australian Securities and Investments Commission (ASIC) Class Order 98/100 dated 10 July 1998. In accordance with that Class Order, all financial information presented has been rounded to the nearest million dollars, unless otherwise stated.

Details of the Qantas Group’s accounting policies, including changes during the year are included in Notes 37 and 38.

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTSThe preparation of the Consolidated Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Judgements made by management in the application of AASBs that have a significant effect on the Consolidated Financial Statements and estimates with a significant risk of material adjustment in future periods are included in the following notes:

– Note 22 – Provisions – Note 24 – Impairment Testing of Cash Generating Units – Note 31 – Superannuation

3. UNDERLYING PROFIT/(LOS S) BEFORE TA X,OPERATING SEGMENTS AND RE TURN ON INVESTED CAPITAL

(A) UNDERLYING PROFIT/(LOSS) BEFORE TAX (UNDERLYING PBT)

Underlying PBT is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors, for the purpose of assessing the performance of the Group.

The primary reporting measure of the Qantas Domestic, Qantas International, Qantas Freight, Jetstar Group and Qantas Loyalty operating segments is Underlying EBIT. The primary reporting measure of the Corporate segment is Underlying PBT as net finance costs are managed centrally and are not allocated to Qantas Domestic, Qantas International, Qantas Freight, Jetstar Group and Qantas Loyalty operating segments.

Refer to Note 3(D) for a description of Underlying PBT and reconciliation from Statutory profit/(loss) before tax.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2015

57


(B) OPERATING SEGMENTS

The Qantas Group comprises the following operating segments:

Operating segments Operations

Qantas Domestic The Australian domestic passenger flying business of Qantas

Qantas International The international passenger flying business of Qantas

Qantas Freight The air cargo and express freight business of Qantas

Jetstar Group The Jetstar passenger flying businesses

Qantas Loyalty The Qantas customer loyalty program (Qantas Frequent Flyer) as well as other marketing services, loyalty and recognition programs

Corporate The centralised management and governance of the Qantas Group

(C) ANALYSIS BY OPERATING SEGMENT1

2015 $M

Qantas Domestic

Qantas International

Qantas Freight

Jetstar Group

Qantas Loyalty Corporate

Unallocated/ Eliminations5 Consolidated


External segment revenue and other income 5,291 4,878 1,059 3,283 1,244 49 12 15,816

Inter-segment revenue and other income 537 589 8 181 118 (40) (1,393) –

Total segment revenue and other income 5,828 5,467 1,067 3,464 1,362 9 (1,381) 15,816

Share of net profit/(loss) of investments accounted for under the equity method2 4 4 – (37) – – – (29)

Underlying EBITDAR3 1,171 706 156 625 323 (149) (8) 2,824

Non-cancellable aircraft operating lease rentals (219) (42) (5) (229) – – – (495)

Depreciation and amortisation (472) (397) (37) (166) (8) (14) (2) (1,096)

Underlying EBIT 480 267 114 230 315 (163) (10) 1,233

Underlying net finance costs (258) (258)

Underlying PBT (421) 975

ROIC %4 16.2%

2014 $M

Qantas Domestic

Qantas International

Qantas Freight

Jetstar Group

Qantas Loyalty Corporate

Unallocated/Eliminations5 Consolidated


External segment revenue and other income 5,284 4,658 1,074 3,073 1,192 70 1 15,352

Inter-segment revenue and other income 564 639 10 149 115 (58) (1,419) –

Total segment revenue and other income 5,848 5,297 1,084 3,222 1,307 12 (1,418) 15,352

Share of net profit/(loss) of investments accounted for under the equity method 2 2 – (70) – – – (66)

Underlying EBITDAR3 804 188 60 310 293 (150) (3) 1,502

Non-cancellable aircraft operating lease rentals (203) (33) (5) (279) – – – (520)

Depreciation and amortisation (571) (652) (31) (147) (7) (13) (1) (1,422)

Underlying EBIT 30 (497) 24 (116) 286 (163) (4) (440)

Underlying net finance costs (206) (206)

Underlying PBT (369) (646)

ROIC %4 (1.5%)

1 Qantas Domestic, Qantas International, Qantas Freight, Jetstar Group, Qantas Loyalty and Corporate are the operating segments of the Qantas Group.2 Share of net profit/(loss) of investments accounted for under the equity method excluding share of losses in Jetstar Hong Kong which have been recognised as items outside of

Underlying PBT.3 Underlying EBITDAR represents Underlying earnings before income tax expense, depreciation, amortisation, non-cancellable aircraft operating lease rentals and net finance costs.4 ROIC % represents Return on Invested Capital (ROIC) EBIT divided by Average Invested Capital (Refer to Note 3(G)).5 Unallocated/Eliminations represent other businesses of the Qantas Group which are not considered to be significant reportable segments and consolidation elimination entries.

58


3. UNDERLYING PROFIT/(LOS S) BEFORE TA X,OPERATING SEGMENTS AND RE TURN ON INVESTED CAPITAL CON T INUED

Basis of Preparation

Underlying EBIT of the Qantas Group’s operating segments is prepared and presented on the basis that reflects the revenue earned and the expenses incurred by each operating segment.

All revenues earned and expenses incurred by Qantas Loyalty, Qantas Freight and Jetstar Group are reported directly by these segments. For Qantas Airlines where revenues earned and expenses incurred are directly attributable to either Qantas International or Qantas Domestic, they have been reported as such. Where revenues earned and expenses incurred by Qantas Airlines are not individually attributable to either Qantas International or Qantas Domestic, they are reported by these operating segments using an appropriate allocation methodology.

The significant accounting policies applied in implementing this basis of preparation are set out below. These accounting policies have been consistently applied to all periods presented in the Consolidated Financial Statements.

Segment Performance Measure Basis of Preparation

External segment revenue External segment revenue is reported by operating segments as follows:

– Net passenger revenue is reported by the operating segment which operated the relevant flight or provided the relevant service. For Qantas Airlines, where a multi-sector ticket covering international and domestic travel is sold, the revenue is reported by Qantas Domestic and Qantas International on a pro-rata basis using an industry standard allocation process.

– Net freight revenue includes air cargo and express freight revenue and is reported by the Qantas Freight operating segment.

– Frequent Flyer redemption revenue, marketing revenue, membership fees and other related revenue is reported by the Qantas Loyalty operating segment.

– Other revenue is reported by the operating segment that earned the revenue.

Inter-segment revenue Inter-segment revenue for Qantas Domestic, Qantas International and Jetstar Group operating segments primarily represents:

– Net passenger revenue arising from the redemption of frequent flyer points for Qantas Group flights by Qantas Loyalty

– Net freight revenue from the utilisation of Qantas Domestic, Qantas International and Jetstar Group’s aircraft bellyspace by Qantas Freight

Inter-segment revenue for Qantas Loyalty primarily represents marketing revenue arising from the issuance of frequent flyer points to Qantas Domestic, Qantas International and Jetstar Group.

Inter-segment revenue transactions, which are eliminated on consolidation, occur in the ordinary course of business at prices that approximate market prices.

Qantas Loyalty does not derive net profit from inter-segment transactions relating to frequent flyer point issuances and redemptions.

Share of net profit/(loss) of investments accounted for under the equity method

Share of net profit/(loss) of investments accounted for under the equity method is reported by the operating segment which is accountable for the management of the investment. The share of net profit/(loss) of investments accounted for under the equity method for Qantas Airlines’ investments has been equally shared between Qantas Domestic and Qantas International.

Underlying EBITDAR The significant expenses impacting Underlying EBITDAR are as follows: – Manpower and staff related costs are reported by the operating segment that utilises the manpower. Where manpower supports both Qantas Domestic and Qantas International, costs are reported by Qantas Domestic and Qantas International using an appropriate allocation methodology.

– Fuel expenditure is reported by the segment that consumes the fuel in its operations. – Aircraft operating variable costs are reported by the segment that incurs these costs. – All other expenditure is reported by the operating segment to which they are directly attributable or, in the case of Qantas Airlines, between Qantas Domestic and Qantas International using an appropriate allocation methodology.

To apply this accounting policy, where necessary, expenditure is recharged between operating segments as a cost recovery.

Depreciation and amortisation

Qantas Domestic, Qantas International, Qantas Freight and Jetstar Group report depreciation expense for aircraft owned by the Qantas Group and flown by the segment.

Other depreciation and amortisation is reported by the segment that uses the related asset.

Non-cancellable aircraft operating lease rentals

Qantas Domestic, Qantas International, Qantas Freight and Jetstar Group report non-cancellable aircraft operating lease rentals for aircraft externally leased by the Qantas Group and flown by the segment.

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(D) DESCRIPTION OF UNDERLYING PBT AND RECONCILIATION FROM STATUTORY PROFIT/(LOSS) BEFORE TAX

Underlying PBT is a non-statutory measure and is the primary reporting measure used by the Qantas Group’s chief operating decision-making bodies, being the Chief Executive Officer, Group Management Committee and the Board of Directors. The objective of measuring and reporting Underlying PBT is to provide a meaningful and consistent representation of the underlying performance of each operating segment and the Qantas Group.

Underlying PBT was derived by adjusting Statutory Profit/(Loss) Before Tax for the impacts of:

i. Ineffectiveness and Non-designated Derivatives relating to Other Reporting Periods

In prior reporting periods, Underlying PBT was adjusted for the impacts of AASB 139 which relate to other reporting periods. The AASB 139 adjustments to Statutory Profit/(Loss) Before Tax ensured derivative mark-to-market movements that relate to underlying exposures in other reporting periods were recognised in Underlying PBT in those reporting periods.

In the current reporting period, as a result of the early adoption of AASB 9 (2013), there is now better alignment between Underlying PBT and Statutory Profit/(Loss) Before Tax. However, there will continue to be a difference between Statutory Profit/(Loss) Before Tax and Underlying PBT resulting from derivative mark-to-market movements being recognised in the Consolidated Income Statement in a different period to the underlying exposure.

ii. Other Items not Included in Underlying PBT

Items which are identified by Management and reported to the chief operating decision-making bodies as not representing the underlying performance of the business are not included in Underlying PBT. The determination of these items is made after consideration of their nature and materiality and is applied consistently from period to period.

Items not included in Underlying PBT primarily result from revenues or expenses relating to business activities in other reporting periods, major transformational/restructuring initiatives, transactions involving investments and impairments of assets and other transactions outside the ordinary course of business.

The reconciliation of Underlying PBT from Statutory Profit/(Loss) Before Tax is detailed in the table below.

Qantas Group

2015 $M

2014 $M

Statutory profit/(loss) before tax 789 (3,976)

Ineffectiveness and non-designated derivatives relating to other reporting periods

– Exclude current year derivative mark-to-market movements relating to underlying exposures in future years 3 (58)

– Exclude current year derivative mark-to-market movements relating to capital expenditure – 21

– Include prior years’ derivative mark-to-market movements relating to underlying exposures in the current year 35 (27)

– Include adjustment for implied depreciation expense relating to excluded capital expenditure mark-to-market movements – (6)

– Exclude ineffectiveness and non-designated derivatives relating to other reporting periods affecting net finance costs 1 (2)

39 (72)


– Impairment of Qantas International CGU – 2,560

– Redundancies, restructuring and other transformation costs 80 428

– Fleet restructuring costs1 4 394

– Net impairment of other intangible assets 7 9

– Net gain on sale of controlled entities and related assets (11) (62)

– Net impairment of investments 19 50

– B787-8 introduction costs – 14

– Write-off of Jetstar Hong Kong Business2 21 –

– Other 27 9

147 3,402

Underlying PBT 975 (646)

1 Fleet restructuring costs includes impairment of aircraft together with other aircraft associated property, plant and equipment, inventory and other related costs.2 The write-off of the Jetstar Hong Kong Business includes the impairment of the investment, write-off of deferred costs and the Group’s share of net losses for the year ended 30 June 2015.

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3. UNDERLYING PROFIT/(LOS S) BEFORE TA X,OPERATING SEGMENTS AND RE TURN ON INVESTED CAPITAL CON T INUED

iii. Underlying EBIT

Underlying EBIT is calculated using a consistent methodology as outlined above but excluding the impact of statutory net finance costs and ineffective and non-designated derivatives relating to other reporting periods affecting net finance costs.

(E) UNDERLYING PBT PER SHARE

Qantas Group

2015 cents

2014 cents

Basic/diluted Underlying PBT per share 44.4 (29.2)

Refer to Note 7 for the weighted average number of shares used in the calculation of basic/diluted Underlying PBT per share.

(F) ANALYSIS BY GEOGRAPHICAL AREAS

i. Revenue and Other Income by Geographic Areas

Qantas Group

Notes2015

$M2014

$M

Net passenger and freight revenue

Australia 10,586 10,558

Overseas 4,017 3,639

Total net passenger and freight revenue 14,603 14,197

Other revenue/income 4 1,213 1,155

Total revenue and other income 15,816 15,352

Net passenger and freight revenue is attributed to a geographic region based on the point of sale and where not directly available, on a pro-rata basis. Other revenue/income is not allocated to a geographic region as it is impractical to do so.

ii. Non-Current Assets by Geographic Areas

Non-current assets which consist principally of aircraft supporting the Group’s global operations are primarily located in Australia.

(G) RETURN ON INVESTED CAPITAL (ROIC %)

Return on Invested Capital (ROIC %) is a non-statutory measure and is the financial return measure of the Group. ROIC % is calculated as Return on Invested Capital EBIT (ROIC EBIT) divided by Average Invested Capital.

i. ROIC EBIT

ROIC EBIT is derived by adjusting Underlying EBIT to exclude non-cancellable aircraft operating lease rentals and include notional depreciation for these aircraft to account for them as if they were owned aircraft.

The objective of this adjustment is to show an EBIT result which is indifferent to the financing or ownership structure of aircraft assets. ROIC EBIT therefore excludes the finance costs implicitly included in operating lease rental payments.

Qantas Group

2015 $M

2014 $M

ROIC EBIT

Underlying EBIT 1,233 (440)

Add: Non-cancellable aircraft lease rentals 495 520

Less: Notional depreciation (252) (273)

ROIC EBIT 1,476 (193)

ii. Average Invested Capital

Invested Capital includes the net assets of the business other than cash, debt, other financial assets/(liabilities) and tax balances. Invested Capital is also adjusted to include an amount representing the external capitalised value of operating leased aircraft assets as if they were owned aircraft. The objective of this adjustment is to show Invested Capital which is indifferent to financing or ownership structures of aircraft assets. Invested Capital therefore includes the capital held in operating leased aircraft notwithstanding that in accordance with Australian Accounting Standards these assets are not recognised on balance sheet.

Average Invested Capital is equal to the 12 month average of the monthly Invested Capital.

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Qantas Group

2015 $M

2014 $M

INVESTED CAPITAL

Receivables (current and non-current) 1,093 1,354

Inventories 322 317

Other assets (current and non-current) 424 374

Investments accounted for using the equity method 134 143

Property, plant and equipment 10,715 10,500

Intangible assets 803 741

Assets classified as held for sale 136 134

Payables (1,881) (1,851)

Provisions (current and non-current) (1,213) (1,281)

Revenue received in advance (current and non-current) (4,943) (4,589)

Capitalised operating leased assets1 3,100 3,553

Invested Capital as at 30 June 8,690 9,395

Average Invested Capital for the year ended 30 June2 9,091 13,004

1 Capitalised operating lease assets are initially measured at fair value at lease commencement date (translated to Australian dollars) and subsequently depreciated in accordance with the Group’s accounting policies for owned aircraft. The calculated depreciation is reported as ‘Notional Depreciation’ in the determination of ROIC EBIT.

2 The impairment of the Qantas International CGU was recognised as at 30 June 2014.

iii. ROIC %

Qantas Group

2015 %

2014 %

ROIC %1 16.2 (1.5)

1 ROIC % is calculated as Return on Invested Capital EBIT (ROIC EBIT) divided by Average Invested Capital.

4. OTHER RE VENUE/INCOME AND OTHER E XPENDITUREQantas Group

Notes2015

$M2014

$M

OTHER REVENUE/INCOME

Frequent Flyer marketing revenue, membership fees and other revenue 348 300

Frequent Flyer store and other redemption revenue1 286 275

Contract work revenue 141 227

Retail, advertising and other property revenue 154 156

Other 284 197

Total other revenue/income 1,213 1,155

OTHER EXPENDITURE

Commissions and other selling costs 544 494

Computer and communication 400 394

Capacity hire 292 331

Non-aircraft operating lease rentals 235 238

Property 244 245

Marketing and advertising 103 86

Redundancies2 60 370

Inventory write-off 27 10 61

Contract work materials 16 57

Ineffective and non-designated derivatives 26 13 (8)

Net gain on sale of controlled entity and related assets 27 (11) (62)

Employee benefit discount rate and other assumption changes (8) (53)

Other 464 482

Total other expenditure3 2,362 2,635

1 Frequent Flyer redemption revenue excludes redemptions on Qantas Group flights which are reported as net passenger revenue in the Consolidated Income Statement.2 Redundancies include defined benefit curtailment expenses of $5 million (2014: $36 million). 3 Employee benefit discount rate and other assumption changes have been disclosed separately within other expenditure rather than manpower expenses as these changes do not reflect

the current service costs for employees. Airport security charges are included in aircraft operating variable costs. Selling and marketing expenses have been separately disclosed as either marketing and advertising, commissions and other selling costs or other expenditure. The comparative for 30 June 2014 has been restated to enable comparability.

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5. NE T FINANCE COSTSQantas Group

2015 $M

2014 $M

FINANCE INCOME

Interest income on financial assets measured at amortised cost 83 73

Interest income from investments accounted for under the equity method 5 6

Unwind of discount on receivables 2 3

Total finance income 90 82

FINANCE COSTS

Interest expense on financial liabilities measured at amortised cost 324 280

Interest paid and capitalised on qualifying assets1 (17) (34)

Fair value hedges

Fair value adjustments on hedged items 2 (10)

Fair value adjustments on derivatives designated in a fair value hedge (2) 8

Total finance costs on financial liabilities 307 244

Unwind of discount on provisions and other liabilities

Employee benefits 22 27

Other liabilities and provisions 20 15

Total unwind of discount on other liabilities and provisions 42 42

Total finance costs 349 286

Net finance costs (259) (204)

1 The borrowing costs are capitalised using the average interest rate applicable to the Qantas Group’s debt facilities being 6.3 per cent (2014: 5.7 per cent).

6. INCOME TA XQantas Group

2015 $M

2014 $M

RECOGNISED IN THE CONSOLIDATED INCOME STATEMENT

Current income tax (expense)/benefit

Current year – foreign (2) –

Adjustments for prior year – –

(2) –

Deferred income tax expense

Origination and reversal of temporary differences (104) 716

(Benefit)/utilisation of tax losses (117) 417

(221) 1,133

Adjustments for prior year (6) –

(227) 1,133

Total income tax (expense)/benefit in the Consolidated Income Statement (229) 1,133

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Qantas Group

2015 $M

2014 $M

RECONCILIATION BETWEEN INCOME TAX (EXPENSE)/BENEFIT AND STATUTORY PROFIT/(LOSS) BEFORE INCOME TAX

Statutory profit/(loss) before income tax (expense)/benefit 789 (3,976)

Income tax (expense)/benefit using the domestic corporate tax rate of 30 per cent (237) 1,193

Adjusted for:

Non-assessable dividends from controlled entities 10 1

Non-deductible share of net loss for investments accounted for under the equity method (14) (21)

Non-deductible losses for controlled entities (7) (15)

Utilisation of previously unrecognised foreign branch and controlled entity losses 5 –

Write-down of investments (2) (15)

Recognition of previously unrecognised deferred tax liability on investments – (11)

Other net (non-deductible)/non-assessable items (4) (8)

Prior period differences 20 9

Income tax (expense)/benefit (229) 1,133

RECOGNISED IN THE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Cash flow hedges 21 86

Defined benefit actuarial gains (17) (46)

Other 2 –

Income tax benefit recognised directly in the Consolidated Statement of Comprehensive Income 6 40

7. E ARNINGS/(LOS S) PER SHAREQantas Group

2015 cents

2014 cents

Basic/diluted earnings/(loss) per share 25.4 (128.5)

$M $M

Statutory profit/(loss) attributable to members of Qantas 557 (2,843)

Number M

Number M

WEIGHTED AVERAGE NUMBER OF SHARES

Issued shares as at 1 July 2,196 2,242

Shares bought back and cancelled – (46)

Issued shares as at 30 June 2,196 2,196

Weighted average number of shares (basic and diluted) as at 30 June 2,196 2,212

NOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 30 JUNE 2015

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8. AUDITOR’S REMUNERATIONQantas Group

2015 $’000

2014 $’000

AUDIT AND AUDIT RELATED SERVICES

Auditors of Qantas – KPMG

– Audit and review of Financial Report 3,219 3,202

– Other regulatory audit services 23 44

Total audit and audit related services 3,242 3,246

OTHER SERVICES

Auditors of Qantas – KPMG

– In relation to other assurance, taxation and due diligence services 1,588 778

– Other non-audit services 570 34

Total other services 2,158 812

Total auditor’s remuneration 5,400 4,058

9. SHAREHOLDER DISTRIBUTIONS

(A) DIVIDENDS DECLARED AND PAID

No dividends were declared or paid in the current year by Qantas. No final dividend will be paid in relation to the year ended 30 June 2015.

For the year ended 30 June 2015, $4 million dividends (2014: $1 million) were declared and paid to non-controlling interest shareholders by non-wholly owned controlled entities.

(B) FRANKING ACCOUNT

Qantas Group

2015 $M

2014 $M

Total franking account balance at 30 per cent 84 84

The above amount represents the balance of the franking account as at 30 June, after taking into account adjustments for: – Franking credits that will arise from the payment of income tax payable for the current year – Franking credits that will arise from the receipt of dividends recognised as receivables at the year end – Franking credits that may be prevented from being distributed in subsequent years

The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends.

10. CASH AND CASH EQUIVALENTSQantas Group

2015 $M

2014 $M

Cash balances 253 206

Cash at call 197 137

Short-term money market securities and term deposits 2,458 2,658

Total cash and cash equivalents 2,908 3,001

Cash and cash equivalents comprise cash at bank and on hand, cash at call and short-term money market securities and term deposits that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

Short-term money market securities of $81 million (2014: $33 million) held by the Qantas Group are pledged as collateral under the terms of certain operational financing facilities when underlying unsecured limits are exceeded. The collateral cannot be sold or repledged in the absence of default by the Qantas Group.

65


11. RECEIVABLESQantas Group

2015 $M

2014 $M

CURRENT

Trade debtors

Trade debtors 712 724

Provision for impairment losses (2) (3)

Total trade debtors 710 721

Sundry debtors 249 475

Total current receivables 959 1,196

NON-CURRENT

Sundry debtors 134 158

Total non-current receivables 134 158

The ageing of trade debtors, net of provision for impairment losses, at 30 June was:

Not past due 628 600

Past due 1–30 days 52 48

Past due 31–120 days 15 67

Past due 121 days or more 15 6

Total trade debtors 710 721

12. INVENTORIESQantas Group

2015 $M

2014 $M

Engineering expendables 270 245

Consumable stores 49 52

Work in progress 3 20

Total inventories 322 317

13. AS SE TS CL AS SIFIED AS HELD FOR SALE

Qantas Group

2015 $M

2014 $M

Assets

Property, plant and equipment 136 134

Total assets classified as held for sale 136 134

The non-recurring fair value measurement for property, plant and equipment classified as held for sale has been categorised under the fair value hierarchy as Level 3 based on the inputs to the valuation technique used. Refer to Note 37 for a definition of the fair value hierarchy.

The fair value less costs to sell for the individual assets was determined with reference to recent sale transactions.

14. INVESTMENTS ACCOUNTED FOR UNDER THE EQUIT Y ME THODQantas Group

2015 $M

2014 $M

Carrying amount of investments accounted for under the equity method 134 143

Share of losses of investments accounted for under the equity method (40) (66)

Share of other comprehensive income 5 1


66


15. PROPERT Y, PL ANT AND EQUIPMENT2015 2014

Qantas Group $M At Cost

Accumulated Depreciation and

ImpairmentNet Book

Value At Cost


ImpairmentNet Book

Value

Freehold land 50 – 50 50 – 50

Buildings 335 214 121 305 203 102

Leasehold improvements 1,647 1,108 539 1,651 1,067 584

Plant and equipment 1,535 1,063 472 1,481 1,003 478

Aircraft and engines 17,937 8,955 8,982 17,131 8,658 8,473

Aircraft spare parts 791 409 382 757 365 392

Aircraft deposits 169 – 169 551 130 421

Total property, plant and equipment at net book value 22,464 11,749 10,715 21,926 11,426 10,500

Qantas Group 2015 $M

Opening Net Book

Value Additions1 Disposals Transfers2

Transferred to Assets

Classified as Held for Sale Depreciation Impairment Other3

Closing Net Book Value

Reconciliations

Freehold land 50 – – – – – – – 50

Buildings 102 – – 29 – (10) – – 121

Leasehold improvements 584 56 – (65) – (43) – 7 539

Plant and equipment 478 44 (6) 36 – (81) (1) 2 472

Aircraft and engines4 8,473 483 (23) 829 (42) (841) (29) 132 8,982

Aircraft spare parts 392 44 (4) – 6 (39) – (17) 382

Aircraft deposits 421 610 (42) (819) – – (1) – 169

Total property, plant and equipment 10,500 1,237 (75) 10 (36) (1,014) (31) 124 10,715

2014 $M

Reconciliations

Freehold land 50 – – – – – – – 50

Buildings 114 – (3) 5 – (14) – – 102

Leasehold improvements 620 74 (40) (18) – (47) (11) 6 584

Plant and equipment 536 82 (38) – – (81) (24) 3 478

Aircraft and engines4 11,075 355 (21) 1,065 (141) (1,161) (2,696) (3) 8,473

Aircraft spare parts 417 56 (9) 4 (9) (48) (11) (8) 392

Aircraft deposits 1,015 505 – (1,113) – – (116) 130 421

Total property, plant and equipment 13,827 1,072 (111) (57) (150) (1,351) (2,858) 128 10,500

1 Additions include capitalised interest of $14 million (2014: $34 million).2 Transfers include transfers between categories of property, plant and equipment and transfers to other balance sheet accounts.3 Other includes foreign exchange movements and non-cash additions including those relating to finance leases.4 Aircraft and engines include finance-leased assets with a net book value of $1,796 million (2014: $1,933 million).

Secured Assets

Certain aircraft and engines act as security against related financings. Under the terms of certain financing facilities entered into by the Qantas Group, the underwriters to these agreements have a fixed charge over certain aircraft and engines to the extent that debt has been issued directly to those underwriters. The total carrying amount of assets under pledge is $4,822 million (2014: $5,934 million).

67


16. INTANGIBLE AS SE TS2015 2014

Qantas Group $M At Cost


Impairment Net Book Value At Cost


Impairment Net Book Value

Goodwill 206 – 206 195 – 195

Airport landing slots 35 – 35 35 – 35

Software 1,152 638 514 1,048 573 475

Brand names and trademarks 25 – 25 22 – 22

Customer contracts/relationships 27 21 6 27 13 14

Contract intangible assets 17 – 17 – – –

Total intangible assets 1,462 659 803 1,327 586 741


Opening Net Book Value Additions1

Acquisition of Controlled

Entity Transfers2 AmortisationIntangibles

Impairments Other3Closing Net Book Value

Goodwill 195 – 8 – – – 3 206

Airport landing slots 35 – – – – – – 35

Software 475 122 – (2) (74) (7) – 514

Brand names and trademarks 22 – – – – – 3 25

Customer contracts/relationships 14 – – – (8) – – 6

Contract intangible assets – 17 – – – – – 17

Total intangible assets 741 139 8 (2) (82) (7) 6 803

2014 $M

Goodwill 197 – – – – – (2) 195

Airport landing slots 35 – – – – – – 35

Software 438 99 – 11 (63) (9) (1) 475

Brand names and trademarks 22 – – – – – – 22

Customer contracts/relationships 22 – – – (8) – – 14

Total intangible assets 714 99 – 11 (71) (9) (3) 7411 Additions include capitalised interest of $3 million (2014: nil).2 Includes transfers between categories of intangible assets and transfers to other balance sheet accounts.3 Other includes foreign exchange movements.

17. DEFERRED TA X AS SE TS/(LIABILITIES)Qantas Group

2015 $M

2014 $M

Deferred tax assets 333 548

Total deferred tax assets 333 548

Qantas Group 2015 $M Opening Balance

Recognisedin the

Consolidated Income

Statement

Recognised in Other

Comprehensive Income Closing Balance

Reconciliations

Inventories (15) 1 – (14)

Property, plant and equipment and intangible assets (1,148) (247) – (1,395)

Payables 25 (2) – 23

Revenue received in advance 674 25 – 699

Interest-bearing liabilities (85) 14 – (71)

Other financial assets/liabilities (45) 49 21 25

Provisions 349 (41) – 308

Other items (179) 97 (15) (97)

Tax value of recognised tax losses1 972 (117) – 855

Total deferred tax assets/(liabilities) 548 (221) 6 333

1 A net deferred tax asset of $333 million (2014: $548 million) has been recognised. The Group considers it probable this deferred tax asset will be recovered.


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17. DEFERRED TA X AS SE TS/(LIABILITIES) CON T INUED


Opening Balance

Recognisedin the

Consolidated Income

Statement

Recognised in Other

Comprehensive Income

Closing Balance

Reconciliations

Inventories (16) 1 – (15)

Property, plant and equipment and intangible assets (1,856) 708 – (1,148)

Payables 38 (13) – 25

Revenue received in advance 639 35 – 674

Interest-bearing liabilities (83) (2) – (85)

Other financial assets/liabilities (99) (32) 86 (45)

Provisions 335 14 – 349

Other items (138) 5 (46) (179)

Tax value of recognised tax losses 555 417 – 972

Total deferred tax assets/(liabilities) (625) 1,133 40 548

Unrecognised Deferred Tax Assets

Deferred tax assets have not been recognised with respect to the following items:

Qantas Group

2015 $M

2014 $M

Tax losses – New Zealand operations 13 14

Tax losses – Singapore operations 31 25

Tax losses – Hong Kong operations 14 9

Total unrecognised deferred tax assets – tax losses 58 48

18. OTHER AS SE TSQantas Group

2015 $M

2014 $M

CURRENT

Prepayments 109 104

Other 2 8

Total current other assets 111 112

NON-CURRENT

Net defined benefit asset (refer to Note 31) 285 233

Other 28 29

Total non-current other assets 313 262

19. PAYABLESQantas Group

2015 $M

2014 $M

Trade creditors 550 613

Other creditors and accruals 1,331 1,238

Total payables 1,881 1,851

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20. RE VENUE RECEIVED IN ADVANCEQantas Group

2015 $M

2014 $M

CURRENT

Unavailed passenger revenue 2,612 2,411

Unredeemed Frequent Flyer revenue 879 897

Other revenue received in advance 93 98

Total current revenue received in advance 3,584 3,406

NON-CURRENT

Unredeemed Frequent Flyer revenue 1,305 1,131

Other revenue received in advance 54 52

Total non-current revenue received in advance 1,359 1,183

21. INTEREST-BE ARING LIABILITIESQantas Group

Note2015

$M2014

$M

CURRENT

Bank loans – secured 304 459

Bank loans – unsecured – 450

Other loans – unsecured 374 69

Lease and hire purchase liabilities – secured 29 93 232

Total current interest–bearing liabilities 771 1,210

NON-CURRENT

Bank loans – secured 2,083 2,313

Bank loans – unsecured 273 546

Other loans – unsecured 1,030 1,336

Lease and hire purchase liabilities – secured 29 1,405 1,078

Total non-current interest-bearing liabilities 4,791 5,273

Certain current and non-current interest-bearing liabilities relate to specific financings of aircraft and engines and are secured by the aircraft to which they relate (refer to Note 15). During the year, there were non-cash financing activities relating to additions of property, plant and equipment under finance leases of $30 million (2014: $130 million).


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22. PROVISIONSQantas Group

2015 $M

2014 $M

CURRENT

Annual leave 253 259

Long service leave 291 316

Redundancies and other employee benefits 138 206

Total current employee benefits 682 781

Onerous contracts 1 23

Make good on leased assets 63 10

Insurance, legal and other 72 62

Total other current provisions 136 95

Total current provisions 818 876

NON-CURRENT

Total non-current employee benefits 41 61

Onerous contracts 2 3

Make good on leased assets 211 177

Insurance, legal and other 141 164

Total other non-current provisions 354 344

Total non-current provisions 395 405

Changes in Accounting Estimates – Discount Rates

Qantas has changed its estimate of the discount rates used to calculate the present value of employee benefits in accordance with AASB 119: Employee Benefits (AASB 119). AASB 119 requires employee benefit provisions to be discounted to their present value using a discount rate determined by reference to market yields at the end of the reporting period on high quality corporate bonds. Previously, it was determined that there was no deep market in Australia for such bonds and therefore, the market yields at the end of the reporting period for government bonds was used. In March 2015, the Group of 100 commissioned the actuarial firm Milliman to perform an assessment of the depth of Australia’s high quality corporate bond market. In their report released in April 2015, Milliman concluded that it is generally accepted practice that bonds rated AA or above are considered high quality and therefore there is now sufficient evidence to support a conclusion that the high quality corporate bond market in Australia is deep. From this date, as required by AASB 119 the Group has changed the rate it uses to discount its Employee Benefit Provisions from State Government Bond Rates to the Corporate Bond Rate.

During the year, the discount rate determined with reference to Corporate Bonds was higher than State Government Bonds. However, a significant reduction in discount rates due to market movements has offset the increase in discount rate resulting from the change to Corporate Bond Rates. The net favourable impact of the change in discount rates on Employee Benefits provisions of $14 million was recognised in the Consolidated Income Statement for the year ended 30 June 2015.

Reconciliations of the carrying amounts of each class of provision, other than employee benefits, are set out below:


Opening Balance

Provisions Made

Provisions Utilised

Unwind of Discount

Closing Balance Current Non-current Total

Reconciliations

Onerous contracts 26 – (23) – 3 1 2 3

Make good on leased assets 187 104 (26) 9 274 63 211 274

Insurance, legal and other 226 36 (57) 8 213 72 141 213

Total 439 140 (106) 17 490 136 354 490

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Nature and Purpose of Provisions

i. Onerous Contracts

An onerous contract is a contract in which the unavoidable cost of meeting the obligations under the contract exceeds the economic benefit expected to be received. The Qantas Group has raised this provision in respect of operating leases on premises and onerous customer contracts.

ii. Make Good on Leased Assets

The Qantas Group has leases that require the asset to be returned to the lessor in a certain condition. A provision has been raised for the present value of the future expected cost at lease expiry.

iii. Insurance, Legal and Other

The Qantas Group self-insures for risks associated with workers compensation in certain jurisdictions. A provision is recognised when an incident occurs that may give rise to a claim and is measured at the present value of the cost that the entity expects to incur in settling the claim. Legal provisions include estimates of the likely penalties to be incurred in relation to claims and litigation in the normal course of business.

23. CAPITAL AND RESERVESQantas Group

2015 $M

2014 $M

ISSUED CAPITAL

Issued and paid-up capital: 2,196,330,250 (2014: 2,196,330,250) ordinary shares, fully paid 4,630 4,630

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ meetings.

In the event of wind-up, Qantas ordinary shareholders rank after all creditors and are fully entitled to any residual proceeds on liquidation.

Treasury shares consist of shares held in trust for Qantas employees in relation to equity compensation plans. As at 30 June 2015, 3,512,952 (2014: 8,230,499) shares were held in trust and classified as treasury shares.

Qantas Group

2015 $M

2014 $M

RESERVES

Employee compensation reserve 47 32

Hedge reserve (refer to Note 26(C)) (122) (72)

Foreign currency translation reserve (29) (41)

Defined benefit reserve 38 –

Total reserves (66) (81)

Nature and Purpose of Reserves

i. Employee Compensation Reserve

The fair value of equity plans granted is recognised in the employee compensation reserve over the vesting period. This reserve will be reversed against treasury shares when the underlying shares vest and transfer to the employee. No gain or loss is recognised in the Consolidated Income Statement on the purchase, sale, issue or cancellation of Qantas’ own equity instruments.

ii. Hedge Reserve

The hedge reserve is comprised of the effective portion of the cumulative net change in the fair value of cash flow hedging instruments and the cumulative change in fair value arising from the time value of options related to future forecast transactions.

iii. Foreign Currency Translation Reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign controlled entities and investments accounted for under the equity method.

iv. Defined Benefit Reserve

The defined benefit reserve comprises the remeasurements of the net defined benefit asset/(liability) which are recognised in other comprehensive income in accordance with AASB 119 Employee Benefits (2011).


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24. IMPAIRMENT TESTING OF CASH GENER ATING UNITSIdentification of an asset’s Cash Generating Unit (CGU) involves judgement based on how Management monitors the Qantas Group’s operations and how decisions to acquire and dispose of the Qantas Group’s assets and operations are made. Management has identified the lowest identifiable group of assets that generates largely independent cash inflows being Qantas International, Qantas Domestic, Qantas Freight, Qantas Loyalty and the Jetstar Group CGUs.

The value in use was determined by discounting the future cash flows forecast to be generated from the continuing use of the units and were based on the following assumptions:

Assumption How determined

Cash Flows Cash flows were projected based on the approved Financial Plan. Cash flows to determine a terminal value were extrapolated using a constant growth rate of 2.5 per cent per annum, which does not exceed the long-term average growth rate for the industry.

Cash outflows include capital expenditure for the purchase of aircraft and other property, plant and equipment. These do not include capital expenditure that enhances the current performance of assets and related cash flows have been treated consistently.

Discount Rate A pre-tax discount rate of 10 per cent per annum has been used in discounting the projected cash flows of the CGUs, reflecting a market estimate of the weighted average cost of capital of the Qantas Group (2014: 10.5 per cent per annum). The discount rate is based on the risk-free rate for 10 year Australian Government Bonds adjusted for a risk premium to reflect both the increased risk of investing in equities and the risk of the specific CGU.

The following CGUs have goodwill and other intangible assets with indefinite useful lives as follows:Qantas Group

2015 $M

2014 $M

Goodwill

Qantas Domestic 10 10

Qantas Loyalty 13 5

Qantas Freight 49 49

Jetstar Group 134 131

206 195

Other intangible assets with indefinite useful lives

Qantas International 35 35

Jetstar Group 25 22

60 57

No impairment was recognised for the identified CGUs during the year ended 30 June 2015 (2014: $2,560 million).

25. SHARE-BASED PAYMENTSEquity benefits to Executives made after 1 July 2010 are governed by the Employee Share Plan (ESP) Trust Deed, the Short Term Incentive Plan (STIP) Terms and Conditions and the Long Term Incentive Plan (LTIP) Terms and Conditions, which were approved by the Qantas Remuneration Committee Chairman under Board Delegation on 12 August 2010.

Further details regarding the operation of equity plans for Executives are outlined in the Directors’ Report from pages 24 to 47.

The total equity settled share-based payment expense for the year was $29 million (2014: $12 million). The total cash settled share-based payment expense for the year was $6 million (2014: nil).

(A) LONG TERM INCENTIVE PLAN (LTIP)

Generally, participation in the LTIP is limited to Senior Executives of the Qantas Group in key roles or other participants who have been identified as high potential Executives. All Rights are redeemable on a one-for-one basis for Qantas shares, subject to the achievement of performance hurdles. Dividends are not payable on the Rights. For more information on the operation of the LTIP, see pages 36 to 37.

Number of Rights

Performance Rights reconciliation 2015 2014

Rights outstanding as at 1 July 33,579,432 28,174,047

Rights granted 64,317,000 13,790,000

Rights forfeited (1,914,000) (4,571,000)

Rights lapsed (15,614,000) (3,755,000)

Rights exercised (58,844) (58,615)

Rights outstanding as at 30 June 80,309,588 33,579,432

Rights exercisable as at 30 June 157,588 216,432

73


During the 2014/2015 year, 64,317,000 Rights were granted. No amount has been paid, or is payable, by the Executive in relation to these Rights. Performance hurdles in relation to the outstanding Rights at 30 June 2015 were tested as at 30 June 2015. As a result, 1,740,150 Rights from the 2013–2015 LTIP award will lapse subsequent to 30 June 2015.

During the year, 58,844 Rights were exercised.

At 30 June 2015, 38,517 Rights are available to be exercised at the request of the Executive under the 2005/2006 award and a further 119,071 Rights under the 2006/2007 award (2014: 14,860 Rights under the 2004/2005 award, 44,682 Rights under 2005/2006 award and 156,890 Rights under the 2006/2007 award).

Fair Value Calculation

The estimated value of Rights granted was determined at grant date using a Monte Carlo model.

The weighted average fair value of Rights granted during the year was $1.06 (2014: $0.83).

2015 2014

Inputs into the models3 May

201524 October

201415 September

201418 October

2013

Rights granted 2,580,500 4,688,500 57,048,000 13,790,000

Weighted average share value $3.40 $1.43 $1.48 $1.43

Expected volatility 35% 35% 35% 35%

Dividend yield 3.7% 1.2% 1.2% 1.5%

Risk-free interest rate 2.0% 2.5% 2.5% 2.9%

The expected volatility was determined having regard to the historical volatility of Qantas shares and the implied volatility on exchange traded options. The risk-free rate was the yield on an Australian Government Bond at the grant date matching the remaining useful lives of the plans. The yield is converted into a continuously compounded rate in the model. The expected life assumes immediate exercise after vesting.

(B) SHORT TERM INCENTIVE PLAN (STIP)

For details on the operation of the STIP, see pages 35 to 36.

There were no awards of Qantas shares made under the STIP during the year ended 30 June 2015 (2014: 794,470 with a weighted average share value of $1.36).

(C) MANAGER INCENTIVE PLAN (MIP)

The MIP is the annual incentive plan for the broader management group. Each year, to the extent that the plan’s performance conditions are achieved, this group may receive an award that is a combination of cash and restricted shares. The MIP outcome is based on individual performance (50 per cent) and scorecard performance (50 per cent). The scorecard performance outcomes are the same as those for STIP. For scorecard performance outcomes, refer to the details of the operation of the STIP on pages 35 to 36.

There were no awards of Qantas shares made under the MIP during the year ended 30 June 2015 (2014: nil).

26. DERIVATIVES AND HEDGING INSTRUMENTSThe following section summarises derivative financial instruments in the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet and the Consolidated Statement of Changes in Equity.

(A) OTHER FINANCIAL ASSETS AND LIABILITIESQantas Group

2015 $M

2014 $M

NET OTHER FINANCIAL ASSETS/(LIABILITIES)

Derivatives

Designated as cash flow hedges1 176 (98)

Designated as fair value hedges1 2 (10)

De-designated derivatives – (7)

Not qualifying for hedge accounting (including time value of options) – 73

Net other financial assets/(liabilities) 178 (42)

Net other financial assets/(liabilities) included in the Consolidated Balance Sheet

Other financial assets – current 613 172

Other financial assets – non-current 49 34

Other financial liabilities – current (416) (182)

Other financial liabilities – non-current (68) (66)

Net other financial assets/(liabilities) 178 (42)

1 Including time value of options after transition to AASB 9.


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26. DERIVATIVES AND HEDGING INSTRUMENTS CON T INUED

(B) OFFSETTING OTHER FINANCIAL ASSETS AND LIABILITIES

The Group enters into contractual arrangements such as the International Swaps and Derivatives Association (ISDA) Master Agreement where, upon the occurrence of a credit event (such as default) a termination value is calculated and only a single net amount is payable in settlement of all transactions that are capable of offset under the contractual terms.

The ISDA agreements do not meet the criteria for offsetting in the Consolidated Balance Sheet. This is because the Group does not have any current legal enforceable right to offset recognised amounts, because the right to offset is enforceable only on the occurrence of future events.

The following table sets out the carrying amounts of recognised financial assets and liabilities that are subject to the above agreements.

2015 2014

Qantas Group $M

Amounts Presented in the

Consolidated Balance Sheet

Amounts Subject to Netting Net Amount

Amounts Presented in the

Consolidated Balance Sheet

Amounts Subject to Netting Net Amount

Financial assets

Other financial assets 662 (374) 288 206 (114) 92

Financial liabilities

Other financial liabilities (484) 374 (110) (248) 114 (134)

Total 178 – 178 (42) – (42)

(C) HEDGE RESERVE

At 30 June 2015, the Qantas Group held various types of derivative financial instruments that were designated as cash flow hedges of future forecast transactions. These were hedging of:

– Future AUD fuel costs and foreign currency operational payments by exchange derivative contracts (forwards, swaps or options) including aviation fuel purchases by crude, gasoil and jet kerosene derivative contracts (forwards, swaps or options)

– Future interest payments by interest rate derivative contracts (forwards, swaps or options) – Future capital expenditure payments by foreign exchange derivative contracts (forwards or options)

The effective portion of the cumulative net change in the fair value of derivative financial instruments designated as a cash flow hedge and the cumulative change in fair value arising from the time value of options are included in the hedge reserve. These options relate entirely to transaction related hedged items. For further information on accounting for derivative financial instruments as cash flow hedges, refer to Note 37(C). The periods in which the related cash flows are expected to occur are summarised below:


Less than 1 Year 1 to 5 Years

More than 5 Years Total

Contracts to hedge

Future AUD fuel costs (124) 3 – (121)

Future interest payments (7) (27) (2) (36)

Future capital expenditure payments 35 – – 35

Total net gain/(loss) included within hedge reserve (96) (24) (2) (122)

2014 $M

Contracts to hedge

Future AUD fuel costs (33) (1) – (34)

Future interest payments (8) (20) (4) (32)

Future capital expenditure payments (6) – – (6)

Total net gain/(loss) included within hedge reserve (47) (21) (4) (72)

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(D) HEDGE ACCOUNTING

As at 30 June 2015

Nominal amount of

hedging instrument and hedged

item Hedge Rates

Carrying amount of the hedging

instrument (AUD)1

Change in value of the

hedging instrument

used for calculating

hedge ineffective-

ness for 2015

Change in value of the

hedged item used for

calculating hedge

ineffective-ness for 2015

Change in the value of the hedging instrument

recognised in other compre-

hensive income

Hedge ineffective-

ness recognised in

profit or loss2

Amount reclassified

from the cash flow hedge reserve to

profit or loss3

Assets Liabilities

M $M $M $M $M $M $M $M $M

CASH FLOW HEDGES

AUD fuel costs (up to 2 years) barrels 33

AUD/barrel70–135 539 (419) (131) 118 (118) (13) (170)

Revenue

(up to 2 years) AUD $38AUD/JPY

81 – (38) (2) 2 (2) – 40

Capital Expenditure (up to 2 years) AUD $472

AUD/USD 0.90–0.78 66 (12) 64 (64) 64 – –

Interest (up to 6 years) AUD $828

Fixed4.40%–

5.99% 56 (53) (6) 6 (6) – –

FAIR VALUE HEDGES

Interest (up to 5 years) AUD $20

Floatingn/a 2 – – – n/a – n/a

1 Hedging instruments are located within the Other Financial Assets and Other Financial Liabilities caption on the Consolidated Balance Sheet and includes costs of hedging.2 Hedge ineffectiveness is recognised in the Other caption in the Consolidated Income Statement.3 Amounts reclassified from the cash flow hedge reserve to the Fuel caption in the Consolidated Income Statement.

Carrying amount of the hedged item equals the nominal amount of the hedging instrument.

(E) DERIVATIVE INEFFECTIVENESS AND NON-DESIGNATED DERIVATIVES IN THE CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2015, the time value component of options accounted for under AASB 9 (2013) requires the change in fair value arising from the time value of options be recognised in other comprehensive income to the extent that it relates to a hedged item. The Qantas Group early adopted AASB 9 (2013) with a date of initial application of 1 July 2014.

For the year ended 30 June 2014, the amounts recognised in the Consolidated Income Statement reflect hedge ineffectiveness on changes in the fair value of any derivative instrument in a cash flow hedge, or part of a derivative instrument that does not qualify for hedge accounting. The time value component of options accounted for under AASB 139 does not form part of the designated hedge relationship and therefore changes in fair value of the time value component are recognised immediately in the Consolidated Income Statement.

Qantas Group

2015 $M

2014 $M

INEFFECTIVE AND NON-DESIGNATED DERIVATIVES

Ineffective portion of cash flow hedges – 110

Components of derivatives not hedge accounted (including time value of options) – (102)

Hedge ineffectiveness on transition to AASB 9 13 –

Ineffective and non-designated derivatives expense 13 8


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27. NOTES TO THE CASH FLOW STATEMENT

(A) RECONCILIATION OF STATUTORY PROFIT/(LOSS) FOR THE YEAR TO NET CASH FROM OPERATING ACTIVITIES

Qantas Group

Note2015

$M2014

$M


Adjustments for:

Non-cash items included in profit/(loss):

Depreciation and amortisation 1,096 1,422

Share-based payments 25 29 12

Impairment of specific assets and investments 28 387

Impairment of cash generating unit – 2,560

Inventory write-off 4 10 61

Amortisation of deferred financing fees and lease benefits 24 18

Net (gain)/loss on disposal of property, plant and equipment (17) 1

Net gain on sale of controlled entity and related assets 4 (11) (62)

Share of net loss of investments accounted for under the equity method 40 66

Other items 30 32

Cash items not included in profit/(loss) relating to operating activities:

Hedging related activities (240) (158)

Dividends received from investments accounted for under the equity method 5 4

Changes in other items:

– Receivables 28 274

– Inventories (30) (28)

– Other assets (13) 35

– Payables 25 15

– Revenue received in advance 360 360

– Provisions (103) 46

– Deferred tax assets/(liabilities) 227 (1,133)

Net cash from operating activities 2,048 1,069

(B) FINANCING FACILITIES

The total amount of financing facilities available to the Qantas Group as at balance date is detailed below:

Qantas Group

2015 $M

2014 $M

FINANCING FACILITIES

Committed bank overdraft1

Facility available 7 7

Amount of facility used – –

Amount of facility unused 7 7

Committed secured funding

Facility available – 500


Amount of facility unused – 500

1 The bank overdraft facility covers the combined balances of Qantas and its wholly owned controlled entities. Subject to the continuance of satisfactory credit ratings, the bank overdraft facility may be utilised at any time. This facility may be terminated without notice.

77


Qantas Group

2015 $M

2014 $M

FINANCING FACILITIES CONTINUED

Committed revolving facility1

Facility available 940 630


Amount of facility unused 940 630

Commercial paper and medium-term notes (subject to Dealer Panel participation)

Facility available 2,000 1,000

Amount of facility used (950) (950)

Amount of facility unused 1,050 50

1 The revolving facility includes $425 million with a term of three years from 24 April 2015, $425 million with a term of four years from 24 April 2015 and $90 million with a term of five years from 31 July 2014. There is an additional $100 million with a term of five years effective from 7 July 2015.

28. ACQUISITION AND DISPOSAL OF CONTROLLED ENTITIESOn 24 March 2015, Qantas Frequent Flyer Limited (Qantas Loyalty) acquired a 51 per cent controlling interest in Taylor Fry Holdings Pty Limited (Taylor Fry Holdings), which owns 100 per cent of Taylor Fry Pty Limited for $9 million. From this date, the results of Taylor Fry Holdings are consolidated into the results of the Group with a 49 per cent non-controlling interest being recognised. Goodwill of $8 million was recognised on acquisition.

During the year, the Group sold the Tour East Group subsidiaries for SGD$18.3 million (A$16.3 million). These entities are wholly owned subsidiaries of the Holiday Tours and Travel Group of which Qantas owns 75 per cent. A gain on sale of these subsidiaries of $13 million was recognised.

29. COMMITMENTS

(A) FINANCE LEASE AND HIRE PURCHASE COMMITMENTS

Qantas Group

2015 $M

2014 $M

AS LESSEE

Finance lease and hire purchase liabilities included in the Consolidated Financial Statements

Aircraft and engines – payable:

Not later than one year 135 262

Later than one year but not later than five years 553 402

Later than five years 1,150 946

1,838 1,610

Less: future lease and hire purchase finance charges and deferred lease benefits (340) (300)

Total finance lease and hire purchase liabilities 1,498 1,310

Qantas Group

Note2015

$M2014

$M

Finance lease and hire purchase liabilities included in the Consolidated Financial Statements

Current liabilities 21 93 232

Non-current liabilities 21 1,405 1,078

Total finance lease and hire purchase liabilities 1,498 1,310

The Qantas Group leases aircraft under finance leases with expiry dates between one and 10 years. Most finance leases contain purchase options exercisable at the end of the lease term. The Qantas Group has the right to negotiate extensions on most leases.


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29. COMMITMENTS CON T INUED

(B) OPERATING LEASE COMMITMENTS Qantas Group

2015 $M

2014 $M

AS LESSEE

Non-cancellable operating lease commitments not provided for in the Consolidated Financial Statements

Aircraft and engines – payable:

No later than one year 469 456


Later than five years 88 140

1,359 1,526

Non-aircraft – payable:

No later than one year 175 170


Later than five years but not later than 10 years 332 289

Later than 10 years 398 399

Less: provision for potential under-recovery of rentals on unused premises available for sub-lease (included in onerous contract provision) (3) (4)

1,423 1,359

2,782 2,885

(C) CAPITAL EXPENDITURE COMMITMENTS

The Group’s capital expenditure commitments as at 30 June 2015 are $10,090 million (2014: $8,632 million). The Group has certain rights within its aircraft purchase contracts which can reduce or defer the above capital expenditure.

The Group’s capital expenditure commitments are predominately denominated in US dollars. Disclosures outlined above are translated to Australian dollar presentational currency at the 30 June 2015 closing exchange rate of $0.77 (30 June 2014: $0.94).

30. CONTINGENT LIABILITIESDetails of contingent liabilities are set out below. The Directors are of the opinion that provisions are not required with respect to these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement.

(A) GUARANTEES

Qantas has entered into guarantees in the normal course of business to secure a self-insurance licence under the Safety, Rehabilitation and Compensation Act 1988, New South Wales Workers Compensation Act, the Victorian Accident Compensation Act and the Queensland Workers’ Compensation Act and Rehabilitation Act, to support non-aircraft operating lease commitments and other arrangements entered into with third parties. Due to specific self-insurance provisions raised, the Directors are of the opinion that the probability of having to make a payment under these guarantees is remote.

(B) AIRCRAFT FINANCING

As part of the financing arrangements for the acquisition of aircraft, the Qantas Group has provided certain guarantees and indemnities to various lenders and equity participants in leveraged lease transactions. In certain circumstances, including the insolvency of major international banks and other counterparties that have a minimum credit rating of A-/A3, the Qantas Group may be required to make payment under these guarantees.

(C) LITIGATION

i. Freight and Passenger Third Party Class Actions

Qantas is a party to a number of third party class actions relating to its freight and passenger divisions. Qantas continues to have a number of defences to these class actions. Qantas expects the outcomes of these class actions will be known over the course of the next few years.

ii. Other Claims and Litigation

From time to time, Qantas is subject to claims and litigation during the normal course of business. The Directors have given consideration to such matters, which are or may be subject to litigation at year end and, subject to specific provisions raised, are of the opinion that no material contingent liability exists.

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31. SUPER ANNUATIONThe Qantas Superannuation Plan (QSP) is a hybrid defined benefit/defined contribution fund with multiple divisions that commenced operation in June 1939. In addition to the QSP, there are a number of small overseas defined benefit plans.

The Qantas Group makes contributions to defined benefit plans that provide defined benefit amounts for employees upon retirement. Under the plans, employees are entitled to retirement benefits determined, at least in part, by reference to a formula based on years of membership and salary levels.

The defined benefit plans are legally separated from the Qantas Group. Responsibility for governance of the plans, including investment decisions and plan rules, rests solely with the Trustee of the plan. The Trustee of the QSP is a corporate trustee which has a board comprising five company-appointed directors and five member-elected directors.

The QSP’s defined benefit plan exposes the Group to a number of risks, the most significant of which are detailed below:

– Investment risk: historically the investment strategy of the QSP’s defined benefit plan was to invest in a significant proportion of growth assets to match the growth in the plan liabilities. If the plan assets underperform by more than expected, the Group may be required to provide additional funding to the plan. In April 2013, Qantas and the Trustee of the QSP adopted a plan to progressively de-risk the defined benefit investment portfolio as the plan’s funding position improves over time.

– Interest rate risk: changes in bond yields, such as a decrease in corporate bond yields, will increase defined benefit liabilities through the discount rate assumed.

– Inflation risk: the defined benefit liabilities are linked to salary inflation, and higher inflation will lead to higher liabilities.

(A) FUNDINGEmployer contributions to the defined benefit plans are based on recommendations by the plans’ actuaries. It is estimated that $96 million of normal employer contributions will be paid by the Qantas Group to its defined benefit plans in 2015/2016.

In May 2013, a revised additional funding plan (effective from 1 July 2013), which addresses the requirements of APRA Prudential Standards, was agreed with the Trustee of the QSP. The determination of Qantas’ additional employer contributions under the funding plan is triggered where the Defined Benefit Vested Benefits Index (DB VBI) is below 100 per cent. The DB VBI is the ratio of the QSP’s assets attributable to the defined benefit liabilities to the total defined benefit amount that the QSP would be required to pay if all members were to voluntarily leave the plan on the funding valuation date. The additional funding plan also triggers further contributions being made where the amount of any retrenchment benefit paid from the plan is in excess of the funded benefit at the time of payment. Qantas contributed an additional $14 million to the QSP during the year ended 30 June 2015 (2014: $8 million).

The QSP’s financial position is monitored by the Trustee each quarter. The actuary recommends the amounts of additional contributions to be made each quarter, as required under the agreed additional funding plan.

(B) MOVEMENT IN NET DEFINED BENEFIT (ASSET)/LIABILITYQantas Group

Present Value of Obligation

$M

Fair Value of Plan Assets

$M

Net Defined Benefit (Asset)/ Liability

$M

2015 2014 2015 2014 2015 2014

Balance as at 1 July 2,172 2,223 (2,405) (2,339) (233) (116)

Included in the Consolidated Income Statement

Current service cost 135 140 – – 135 140

Past service cost1 5 36 – – 5 36

Interest expense/(income) 97 117 (104) (118) (7) (1)

Contributions by plan participants – – (23) (23) (23) (23)

Total amount included in manpower and staff related expenditure 237 293 (127) (141) 110 152

Included in the Consolidated Statement of Comprehensive Income

Remeasurements: – Return on plan assets, excluding interest income – – (94) (101) (94) (101) – Loss/(gain) from change in demographic assumptions 2 (34) – – 2 (34) – Loss from change in financial assumptions 81 51 – – 81 51 – Experience gains (43) (76) – – (43) (76) – Exchange differences on foreign plans 19 7 (20) (6) (1) 1

Total amount recognised in other comprehensive income 59 (52) (114) (107) (55) (159)

Contributions by employer – – (107) (110) (107) (110)

Benefit payments (344) (292) 344 292 – –

Balance as at 30 June 2,124 2,172 (2,409) (2,405) (285) (233)1 Past service cost of $5 million (2014: $36 million) for defined benefit curtailment expenses relates to a significant reduction in employees covered by the QSP’s defined benefit plan as a

result of transformation initiatives.


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31. SUPER ANNUATION CON T INUED

(C) PLAN ASSETS

The major categories of plan assets as a percentage of total plan assets of the Group’s defined benefit plans are as follows:

Qantas Group

2015 %

2014 %

Australian equity1 14 18

Global equity1 – United States 9 11

– Europe 8 9

– Japan 2 2

– Other 4 7

Private equity 5 5

Fixed interest1 – Government bonds 11 12

– Other 9 7

Credit1 – Corporate debt 9 7

– Other 2 2

Hedge funds 11 10

Property and infrastructure 9 9

Cash and cash equivalents1 7 1

100 100

1 Majority of these plan assets have a quoted market price in an active market.

The Trustee of the QSP is responsible for setting the investment strategy and objectives for the QSP’s assets supporting the defined benefit liabilities. The QSP does not currently use any asset-liability matching strategies. It utilises traditional investment management techniques to manage the defined benefit assets.

(D) ACTUARIAL ASSUMPTIONS AND SENSITIVITY

The significant actuarial assumptions (expressed as weighted averages per annum) were as follows:

Qantas Group

2015 %

2014 %

Discount rate (Australia) 4.4 4.4

Future salary increases (Australia)1 3.0 3.0

1 For the 30 June 2015 actuarial calculation, salary increases of 2.1 per cent in year 1 and year 2 and 3 per cent for the remaining duration of the plan were assumed. For the 30 June 2014 actuarial calculation, nil salary increase in year 2 and year 3 and three per cent in all other years for the remaining duration of the Plan were assumed.

The expected long-term rate of return is based on the weighted average of expected returns on each individual asset class where the weightings reflect the proportion of defined benefit assets invested in each asset class. Each asset class’ expected return is based on expectations of average returns over the next 10 years.

The weighted average duration of the QSP’s defined benefit obligation as at 30 June 2015 was 10 years (2014: 12.6 years).

The sensitivity of the defined benefit obligation to changes in the significant assumption is as follows:

Impact on Defined Benefit Obligation

30 June 2015 30 June 2014

Change in Assumption Increase in Assumption Decrease in Assumption Increase in Assumption Decrease in Assumption

Discount rate 1% Decrease by 11.3% Increase by 13.3% Decrease by 11.5% Increase by 11.6%

Future salary increase 1% Increase by 10.6% Decrease by 9.3% Increase by 10.3% Decrease by 10.7%

Defined contribution fund

The Qantas Group’s results include $165 million (2014: $173 million) of expenses in relation to defined contribution funds.

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32. DEED OF CROS S GUAR ANTEEPursuant to ASIC Class Order 98/1418 (as amended) (Class Order), the wholly owned entities identified below are relieved from the Corporations Act requirements for preparation, audit, distribution and lodgment of Financial Statements and Directors’ Reports.

AAL Aviation Limited Impulse Airlines Australia Pty Ltd Express Freighters Australia Pty Ltd

Australian Regional Airlines Pty Ltd Jetstar Airways Pty Ltd Express Freighters Australia (Operations) Pty Ltd

Regional Airlines Charter Pty Ltd Jetstar Group Pty Ltd Qantas Road Express Pty Ltd

Network Aviation Pty Ltd First Brisbane Airport Pty Ltd Qantas Courier Limited

The Network Trust Second Brisbane Airport Pty Ltd Qantas Frequent Flyer Limited

Network Aviation Holdings Pty Ltd TAA Aviation Pty Ltd Qantas Frequent Flyer Operations Pty Ltd

The Network Holding Trust Australian Airlines Limited Qantas Ground Services Pty Ltd

Network Holding Investments Pty Ltd Jetstar Services Pty Ltd Qantas Group Flight Training Pty Ltd

Network Turbine Solutions Pty Ltd Jetstar Asia Holdings Pty Ltd Qantas Group Flight Training (Australia) Pty Ltd

Osnet Jets Pty Ltd Q H Tours Limited Qantas Information Technology Limited

Sunstate Airlines (Qld) Pty Ltd Qantas Asia Investment Company Pty Ltd QF Cabin Crew Australia Pty Ltd

Southern Australia Airlines Pty Ltd Qantas Catering Group Limited Snap Fresh Pty Ltd

Airlink Pty Ltd Q Catering Limited Accumulate Loyalty Services Limited

Eastern Australia Airlines Pty Ltd Qantas Domestic Pty Ltd Loyalty Magic Pty Ltd

Qantas Freight Enterprises Limited Australian Air Express Pty Ltd Impulse Airlines Holdings Pty Ltd

It is a condition of the Class Order that Qantas and each of the controlled entities eligible to obtain relief under the Class Order enter into a Deed of Cross Guarantee (Deed).

Under the Deed, Qantas guarantees to each creditor payment in full of any debt upon the winding up under certain provisions of the Corporations Act of any of the controlled entities that is party to the Deed. If the winding up occurs under other provisions of the Corporations Act, Qantas will only be liable if, six months after a resolution or order for the winding up of the controlled entity, any debt of a creditor of that controlled entity has not been paid in full. Each controlled entity that is party to the Deed has given similar guarantees in the event Qantas is wound up.

Qantas and its eligible controlled entities first entered into a Deed on 4 June 2001. Subsequently, additional controlled entities became party to the Deed by way of Assumption Deeds dated 17 June 2002, 26 June 2006, 29 June 2007, 30 June 2008, 29 June 2009, 16 June 2010, 25 November 2010, 4 April 2011, 13 October 2011 and 20 November 2012.

The Consolidated Condensed Income Statement and Balance Sheet for Qantas and each of its controlled entities that are party to the Deed are set out below. The principles of consolidation are:

– Transactions, balances and unrealised gains and losses on transactions between entities that are party to the Deed are eliminated – Investments that are not party to the Deed are carried at cost less any accumulated impairment – Dividends received from investments are recognised as income

(A) CONDENSED INCOME STATEMENT

Consolidated

2015 $M

2014 $M


Expenditure (14,491) (18,532)

Statutory profit/(loss) before income tax expense and net finance costs 879 (3,656)


Statutory profit/(loss) before income tax expense 633 (3,851)



Retained earnings as at 1 July (1,548) 1,139

Defined benefit actuarial gains, net of tax – 113

Shares vested and transferred to employees (2) (4)

Share-based payments unvested and lapsed 1 6

Retained earnings as at 30 June (1,146) (1,548)


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32. DEED OF CROS S GUAR ANTEE CON T INUED

(B) BALANCE SHEET

Consolidated

2015 $M

2014 $M

CURRENT ASSETS

Cash and cash equivalents 2,759 2,899

Receivables 1,234 1,526

Other financial assets 613 172

Inventories 322 317

Assets classified as held for sale 136 134

Other 102 104


NON-CURRENT ASSETS


Other financial assets 49 34

Investments 268 430



Deferred tax asset 330 461

Other 292 239



CURRENT LIABILITIES

Payables 2,000 1,898

Revenue received in advance 3,505 3,330

Interest-bearing liabilities 924 1,389

Other financial liabilities 414 182

Provisions 799 854




Interest-bearing liabilities 6,056 6,852

Other financial liabilities 68 66

Provisions 329 380




EQUITY

Issued capital 4,630 4,630


Reserves (36) (40)



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33. REL ATED PARTIES

(A) REMUNERATION OF KEY MANAGEMENT PERSONNEL

The aggregate remuneration of the KMP of the Qantas Group is set out below:

Qantas Group

2015 $’000

2014 $’000

Short-term employee benefits 13,985 9,129

Post-employment benefits 605 522

Other long-term benefits 306 (285)

Share-based payments 6,463 4,421

Termination benefits 1,316 –

22,675 13,787

Further details in relation to the remuneration of KMPs are included in the Directors’ Report from pages 28 to 46.

(B) OTHER RELATED PARTY TRANSACTIONS – INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

Transactions with investments accounted for under the equity method are conducted on normal terms and conditions.

Transactions between the Qantas Group and associates include: – The Qantas Group provides airline seats on domestic and international routes to Helloworld Ltd for sale through its travel agency network

– The Qantas Group sells Frequent Flyer points to Helloworld Ltd and redeems vouchers on the Qantas Frequent Flyer store – The Qantas Group established a business service agreement with Jetstar-branded airlines in Japan, Hong Kong and Vietnam for the provision of business services to enable the low cost airline to operate a consistent customer experience for the Jetstar brand

– The Qantas Group provided a secured aircraft facility to Jetstar Hong Kong to facilitate the acquisition of aircraft.

Transactions and balances with investments accounted for under the equity method are included in the Consolidated Financial Statements as follows:

Qantas Group

2015 $M

2014 $M

Revenue and other income 60 61

Finance income 5 6

Expenditure 61 49

Receivables 67 292

Payables 6 5

34. FINANCIAL RISK MANAGEMENTA financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

The Qantas Group is subject to liquidity, interest rate, foreign exchange, fuel price and credit risks. These risks are an inherent part of the operations of an international airline. The Qantas Group manages these risk exposures using various financial instruments, governed by a set of policies approved by the Board. The Qantas Group’s policy is not to enter into, issue or hold derivative financial instruments for speculative trading purposes.

The Qantas Group uses different methods to assess and manage different types of risk to which it is exposed. These methods include correlations between risk types, sensitivity analysis in the case of interest rate, foreign exchange and other price risks, and ageing analysis and sensitivity analysis for liquidity and credit risk.

(A) LIQUIDITY RISK

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Qantas Group manages liquidity risk by targeting a minimum liquidity level, ensuring long-term commitments are managed with respect to forecast available cash inflows, maintaining access to a variety of additional funding sources, including commercial paper and standby facilities and managing maturity profiles.

Qantas may from time to time seek to purchase and retire outstanding debt through cash purchases in open market transactions, privately negotiated transactions or otherwise. Any such repurchases would depend on prevailing market conditions, liquidity requirements and possibly other factors.

The following tables summarise the contractual timing of cash flows, including estimated interest payments, of financial liabilities and derivative instruments. Contractual amount assumes current interest rates and foreign exchange rates.


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34. FINANCIAL RISK MANAGEMENT CON T INUED


Less than 1 Year 1 to 5 Years

More than 5 Years Total

FINANCIAL LIABILITIES

Payables 1,881 – – 1,881

Bank loans – secured1 383 1,481 885 2,749

Bank loans – unsecured1 11 313 – 324

Other loans – unsecured1 472 613 777 1,862

Lease and hire purchase liabilities1 135 553 1,150 1,838

Derivatives – inflows (370) (58) (4) (432)

Derivatives – outflows 334 109 8 451

Net other financial assets/liabilities – outflows (152) (22) – (174)

Total financial liabilities 2,694 2,989 2,816 8,499

2014 $M

FINANCIAL LIABILITIES

Payables 1,851 – – 1,851

Bank loans – secured1 556 1,616 1,039 3,211

Bank loans – unsecured1 486 611 – 1,097

Other loans – unsecured1 168 693 1,096 1,957

Lease and hire purchase liabilities1 262 402 946 1,610

Derivatives – inflows (122) (409) (19) (550)

Derivatives – outflows 152 459 29 640

Net other financial assets/liabilities – outflows (14) (8) – (22)

Total financial liabilities 3,339 3,364 3,091 9,794

1 Recognised financial liability maturity values are shown pre-hedging.

(B) MARKET RISK

The Qantas Group has exposure to market risk in the following areas: interest rate, foreign exchange and fuel price. The following section summarises the Qantas Group’s approach to managing these risks.

i. Interest Rate Risk

Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Qantas Group has exposure to movements in interest rates arising from its portfolio of interest rate sensitive assets and liabilities in a number of currencies, predominantly in AUD, GBP, USD, JPY, NZD and EUR. These principally include corporate debt, leases and cash. The Qantas Group manages interest rate risk by using a floating versus fixed rate debt framework. The relative mix of fixed and floating interest rate funding is managed by using interest rate swaps, forward rate agreements and options.

For the year ended 30 June 2015, interest-bearing liabilities amounted to $5,562 million (2014: $6,483 million). The fixed/floating split is 37 per cent and 63 per cent respectively (2014: 31 per cent and 69 per cent).

For the year ended 30 June 2015, other financial assets and liabilities included derivative financial instruments relating to debt obligations and future interest payments totalling $5 million (asset) (2014: $64 million (liability)).

ii. Foreign Exchange Risk (Revenue and Capital Expenditure)

Foreign exchange risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The source and nature of this risk arise from operations, capital expenditures and translation risks.

Cross-currency swaps are used to convert long-term foreign currency borrowings to currencies in which the Qantas Group has forecast sufficient surplus net revenue to meet the principal and interest obligations under the swaps. Where long-term borrowings are held in foreign currencies in which the Qantas Group derives surplus net revenue, offsetting forward foreign exchange contracts have been used to match the timing of cash flows arising under the borrowings with the expected revenue surpluses. These foreign currency borrowings have a maturity of between one and 12 years. To the extent a foreign exchange gain or loss is incurred, and the cash flow hedge is deemed effective, this is deferred until the net revenue is realised.

As at 30 June 2015, total unrealised exchange gains on hedges of net revenue designated to service long-term debt were $12 million (2014: $54 million).

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Forward foreign exchange contracts and currency options are used to hedge a portion of remaining net foreign currency revenue or expenditure in accordance with Qantas Group policy. Net foreign currency revenue and expenditure out to two years may be hedged within specific parameters, with any hedging outside these parameters requiring approval by the Board. Purchases and disposals of property, plant and equipment denominated in a foreign currency may be hedged out to two years using a combination of forward foreign exchange contracts and currency options.

For the year ended 30 June 2015, other financial assets and liabilities included derivative financial instruments used to hedge foreign currency, including hedging of future capital and operating expenditure payments, totalling $54 million (net asset) (2014: $2 million (net liability)). These are recognised at fair value in accordance with AASB 9.

iii. Future AUD Fuel Costs

The Qantas Group uses options and swaps on jet kerosene, gasoil and crude oil to hedge exposure to movements in the USD price of aviation fuel. Qantas considers the crude component to be a separately identifiable and measureable component of aviation fuel. The foreign exchange risk in the total fuel cost is separately hedged using foreign exchange contracts and currency options. Hedging is conducted in accordance with Qantas Group policy. Fuel consumption out to two years may be hedged within specific parameters, with any hedging outside these parameters requiring approval by the Board.

For the year ended 30 June 2015, other financial assets and liabilities include fuel and foreign exchange derivatives totalling $120 million (net asset) (2014: $24 million (net asset)). These are recognised at fair value in accordance with AASB 9.

iv. Sensitivity on Interest Rate, Foreign Exchange and Fuel Price Risk

The table below summarises the gain/(loss) impact of reasonably possible changes in market risk, relating to existing financial instruments, on net profit and equity before tax. For the purpose of this disclosure, the following assumptions were used:

– 100 basis points (2014: 100 basis points) increase and decrease in all relevant interest rates – 20 per cent (2014: 20 per cent) USD depreciation and USD appreciation – 20 per cent (2014: 20 per cent) increase and decrease in all relevant fuel indices – Sensitivity analysis assumes hedge designations as at 30 June 2015 remain unchanged and that all designations are effective – Sensitivity analysis on foreign currency pairs and fuel indices of 20 per cent represent recent volatile market conditions – Sensitivity analysis assumes an offset between USD and fuel price indices based on observed market movements

Profit Before Tax Equity (Before Tax)

Qantas Group $M 2015 2014 2015 2014

100bps increase in interest rates

Variable rate interest-bearing instruments (net of cash) (10) (18) – –

Derivatives designated in a cash flow hedge relationship – – 21 25

Derivatives and fixed rate debt in a fair value hedge relationship – – – –

100bps decrease in interest rates

Variable rate interest-bearing instruments (net of cash) 10 18 – –

Derivatives designated in a cash flow hedge relationship – – (22) (26)

Derivatives and fixed rate debt in a fair value hedge relationship – – – –

20% movement in AUD fuel costs

20% (2014: 20%) USD depreciation, 20% (2014: 20%) increase per barrel in fuel indices – (77) (26) 14

20% (2014: 20%) USD appreciation, 20% (2014: 20%) decrease per barrel in fuel indices – (61) 519 723

(C) CREDIT RISK

Credit risk is the potential loss from a transaction in the event of default by the counterparty during the term of the transaction or on settlement of the transaction. Credit exposure is measured as the cost to replace existing transactions should a counterparty default.

The Qantas Group conducts transactions with the following major types of counterparties: – Trade debtor counterparties: the credit risk is the recognised amount, net of any impairment losses. As at 30 June 2015, trade debtors amounted to $710 million (2014: $721 million). The Qantas Group has credit risk associated with travel agents, industry settlement organisations and credit provided to direct customers. The Qantas Group minimises this credit risk through the application of stringent credit policies and accreditation of travel agents through industry programs.

– Other financial asset counterparties: the Qantas Group restricts its dealings to counterparties that have acceptable credit ratings. Should the rating of a counterparty fall below certain levels, internal policy dictates that approval by the Board is required to maintain the level of the counterparty exposure.


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34. FINANCIAL RISK MANAGEMENT CON T INUED

The table below sets out the maximum exposure to credit risk as at 30 June 2015:

Qantas Group

Notes2015

$M2014

$M

On Consolidated Balance Sheet

Cash and cash equivalents 10 2,908 3,001

Receivables 11 1,093 1,354


The Qantas Group minimises the concentration of credit risk by undertaking transactions with a large number of customers and counterparties in various countries in accordance with Board-approved policy. As at 30 June 2015, the credit risk of the Qantas Group to counterparties in relation to other financial assets, cash and cash equivalents, and other financial liabilities amounted to $2,963 million (2014: $3,057 million). Refer to Note 26(B) for offsetting disclosures of contractual arrangements. The Qantas Group’s credit exposure in relation to these assets is with counterparties that have a minimum credit rating of A-/A3, unless individually approved by the Board.

(D) FAIR VALUE

The fair value of cash, cash equivalents and non-interest-bearing financial assets and liabilities approximates their carrying value due to their short maturity. The fair value of financial assets and liabilities is determined by valuing them at the present value of future contracted cash flows. Cash flows are discounted using standard valuation techniques at the applicable market yield, having regard to the timing of the cash flows.

The fair value of forward foreign exchange and fuel contracts is determined as the unrealised gain/loss at balance date by reference to market exchange rates and fuel prices. The fair value of interest rate swaps is determined as the present value of future contracted cash flows. Cash flows are discounted using standard valuation techniques at the applicable market yield, having regard to the timing of the cash flows. The fair value of options is determined using standard valuation techniques.

Other financial assets and liabilities represent the fair value of derivative financial instruments recognised on the Consolidated Balance Sheet in accordance with AASB 9. Refer to Note 37 for a definition of the fair value hierarchy.

2015 2014

Carrying Amount held at Carrying Amount held at

NotesFair Value through

profit and loss Amortised Cost Fair ValueFair Value through

profit and loss Amortised Cost Fair Value

Financial assets

Cash and cash equivalents 10 – 2,908 2,917 – 3,001 3,011

Receivables 11 – 1,093 1,093 – 1,354 1,354

Other financial assets1 26 662 – 662 206 – 206

Financial liabilities

Payables 19 – 1,881 1,881 – 1,851 1,851

Interest-bearing liabilities 21 – 5,562 5,575 – 6,483 6,392

Other financial liabilities1 26 484 – 484 248 – 248

1 Other financial assets and liabilities represent the fair value of derivative financial instruments recognised on the Consolidated Balance Sheet in accordance with AASB 9. These derivative financial instruments have been measured at fair value using Level 2 inputs in estimating their fair values.

(E) CAPITAL MANAGEMENT

The Qantas Group’s capital management framework is designed to maximise shareholder value by targeting top quartile Total Shareholder Return relative to the ASX100 and global airline peers. The framework’s key elements are to:

– Maintain an optimal capital structure commensurate with credit rating metrics1 between BBB and BBB-, which minimises cost of capital, through holding an appropriate mix of debt (net debt including off balance sheet for aircraft operating leases) and equity

– Achieve Return on Invested Capital (ROIC) performance that exceeds cost of capital over the cycle. ROIC performance for the year ended 30 June 2015 was 16.2 per cent (2014: (1.5) per cent)

– Grow Invested Capital over time via disciplined ROIC accretive investment, with flexibility to increase or decrease annual investment levels as required. The Qantas Group’s average Invested Capital during the year ended 30 June 2015 was $9.1 billion (2014: $13 billion)

1 Primary credit rating metrics are ‘Funds From Operations (FFO) to Debt’ and ‘Debt to EBITDA’ under Standard & Poor’s rating methodology and the equivalent ratios under Moody’s rating methodology

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The Qantas Group takes a disciplined approach to continually reviewing its capital structure against the optimal capital structure. Where there is surplus capital, the Group seeks to enhance shareholder value with the appropriate mix of growth and shareholder returns. Where surplus capital enables returns to be made to shareholders, the Board will have regard to a range of factors (including the level of franking credits available) to determine the ideal method to return capital, be it through dividends, buybacks (off or on market), capital returns or a combination of each.

The Qantas Group maintains access to a broad range of debt markets, both secured and unsecured. The Qantas Group maintains a prudent liquidity policy that ensures adequate coverage of liquidity requirements under a range of adverse scenarios.

35. E VENTS SUBSEQUENT TO BAL ANCE DATE

Sale of Terminal Three

On 18 August 2015, Qantas Airways Limited and Sydney Airport Corporation Limited (SACL) reached a commercial agreement that delivers long-term certainty to both concerning the airport’s domestic third terminal. Under the terms of the 10-year deal, ownership of Terminal Three will revert from Qantas to SACL as of 1 September 2015. Qantas held a 30-year lease on the terminal, signed in 1989, which was due to expire on 30 June 2019.

Qantas will receive total cash proceeds of $535 million from SACL which exceeds the carrying value of the assets disposed.

Use of the terminal from 1 September will incur a per-passenger charge at an agreed rate through to 2025. In line with current operations, Qantas will retain exclusive use of Terminal Three and will manage the terminal on behalf of SACL until July 2019.

After that time, Qantas will retain priority access to Terminal Three through to 2025. The arrangement with SACL also incorporates a five-year agreement covering Qantas’ domestic runway charge and Qantas and Jetstar international aeronautical charges.

Shareholder Distribution

On 20 August 2015, Qantas announced that the Board proposed to undertake a capital management initiative for Qantas shareholders, comprising a distribution to shareholders of 23 cents per share and a related share consolidation.

The proposed capital management initiative (subject to shareholder approval at Qantas’ Annual General Meeting in October 2015) is comprised of:

– a return of approximately $505 million of share capital (to be effected by Qantas paying each shareholder 23 cents per share held), to be paid in November 2015; and

– an equal and proportionate share consolidation, relating to the return of capital, through the conversion of each share into 0.939 shares.

Other than the matters noted above, there has not arisen in the interval between 30 June 2015 and the date of this Report any other event that would have had a material effect on the Consolidated Financial Statements as at 30 June 2015.

36. PARENT ENTIT Y DISCLOSURES FOR Q ANTAS AIRWAYS LIMITED (Q ANTAS)

(A) CONDENSED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2015

Qantas

2015 $M

2014 $M


Expenditure (10,139) (13,874)

Statutory profit/(loss) before income tax expense and net finance costs 1,115 (3,731)


Statutory profit/(loss) before income tax (expense)/benefit 869 (3,921)




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36. PARENT ENTIT Y DISCLOSURES FOR Q ANTAS AIRWAYS LIMITED (Q ANTAS) CON T INUED

(B) CONDENSED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015

Qantas

2015 $M

2014 $M


Effective portion of changes in fair value of cash flow hedges, net of tax (42) (97)

Transfer of hedge reserve to the Income Statement, net of tax 91 (70)

Recognition of effective cash flow hedges on capitalised assets, net of tax (2) (19)

Time value of options, net of tax (95) –

Defined benefit actuarial gains, net of tax 35 109

Total other comprehensive income/(loss) for the year (13) (77)


(C) CONDENSED BALANCE SHEET AS AT 30 JUNE 2015Qantas

2015 $M

2014 $M

CURRENT ASSETS

Cash and cash equivalents 2,748 2,897


Inventories 240 232

Other 809 372


NON-CURRENT ASSETS




Other 1,188 1,599



CURRENT LIABILITIES

Payables 4,204 3,517


Interest-bearing liabilities 923 1,389

Other 1,068 907




Interest-bearing liabilities 6,056 6,852

Other 283 434




EQUITY

Issued capital 4,630 4,630


Reserves (39) (33)



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(D) CAPITAL EXPENDITURE COMMITMENTS

Qantas’ capital expenditure commitments as at 30 June 2015 are $10,051 million (2014: $8,622 million). Qantas has certain rights within its aircraft purchase contracts which can reduce or defer the above capital expenditure.

Qantas’ capital expenditure commitments are predominantly denominated in US dollars. Disclosures outlined above are translated to Australian dollar presentational currency at the 30 June 2015 closing exchange rate of $0.77 (30 June 2014: $0.94).

(E) FINANCING FACILITIES

The financing facilities held by the parent entity are the same as those held by the Group as disclosed in Note 27(B).

(F) CONTINGENT LIABILITIES

The contingent liabilities held by the parent entity are the same as those held by the Group as disclosed in Note 30.

(G) PARENT ENTITY GUARANTEES IN RESPECT OF DEBTS OF ITS SUBSIDIARIES

The parent entity has entered into a Deed of Cross Guarantee with the effect that the Company guarantees debts in respect of its subsidiaries. Further details of the Deed of Cross Guarantee and the subsidiaries subject to the Deed are disclosed in Note 32.

(H) INTEREST-BEARING LIABILITIES

The parent entity has total interest-bearing liabilities of $6,979 million (2014: $8,241 million), of which $3,185 million (2014: $3,532 million) represent lease and hire purchase liabilities payable to controlled entities. Of the $3,794 million (2014: $4,709 million) payable to other parties, $2,128 million (2014: $2,314 million) represents secured bank loans and lease liabilities with the remaining balance representing unsecured loans and deferred lease benefits.

37. SIGNIFICANT ACCOUNTING POLICIESExcept for the changes explained in Note 38, the Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements.

(A) PRINCIPLES OF CONSOLIDATION

i. Business Combinations

All business combinations are accounted for by applying the acquisition method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Negative goodwill arising on an acquisition is recognised directly in the Consolidated Income Statement. Transaction costs are expensed as incurred. Any contingent consideration is measured at fair value at the date of acquisition.

ii. Controlled Entities

Controlled entities are entities controlled by the Group. Control exists when the Group is exposed to or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The Financial Statements of controlled entities are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases.

iii. Non-controlling Interests

Non-controlling interests in the results and equity of controlled entities are shown separately in the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and Consolidated Balance Sheet.

iv. Loss of Control

When the Group loses control over a controlled entity, it derecognises the assets and liabilities of the controlled entity and any related non-controlling interest and other components of equity. Any resulting gain or loss on sale is recognised in the Consolidated Income Statement. Any interest retained in the former controlled entity is measured at fair value when control is lost and depending on the nature of the retained interest, is recognised as either an investment accounted for under the equity method where the Group retains significant influence or as a financial asset.

v. Equity Accounted Investments

Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. Investments in associates are accounted for under the equity accounting method. The investments are carried at the lower of the equity accounted amount and the recoverable amount.


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37. SIGNIFICANT ACCOUNTING POLICIES CON T INUED

The Group’s share of the associates’ post-acquisition profit or loss is recognised in the Consolidated Income Statement from the date that significant influence commences until the date that significant influence ceases. The Group’s share of post-acquisition movements in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying value of the investment.

Dividends reduce the carrying amount of the equity accounted investment.

When the Group’s share of losses exceeds the equity accounted carrying value of an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued, except to the extent that the Group has incurred legal or constructive obligations to fund the associates’ operations or has made payments on behalf of an associate.

vi. Transactions Eliminated on Consolidation

Intra-group transactions, balances and unrealised gains and losses on transactions between controlled entities are eliminated in preparing the Consolidated Financial Statements. Unrealised gains and losses arising from transactions with investments accounted for under the equity method are eliminated to the extent of the Group’s interest in the associate.

(B) FOREIGN CURRENCY

i. Foreign Currency Transactions

Transactions in foreign currencies are translated to the functional currency of the Group at the rates of exchange prevailing at the date of each transaction except where hedge accounting is applied. At reporting date, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the rates of exchange prevailing at that date. Resulting exchange differences are brought to account as exchange gains or losses in the Consolidated Income Statement in the year in which the exchange rates change. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to the functional currency at foreign exchange rates prevailing at the dates the fair value was determined.

ii. Foreign Operations

Assets and liabilities of foreign operations, including controlled entities and investments accounted for under the equity method, are translated to the functional currency of the Group at the rates of exchange prevailing at balance date. The income statements of foreign operations are translated to the functional currency at rates approximating the foreign exchange rates prevailing at the dates of the transactions. Exchange differences arising on translation are recognised in other comprehensive income and are presented within equity in the foreign currency translation reserve. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the Consolidated Income Statement as part of the gain or loss on disposal. When the Group disposes of only part of its interest in an investment accounted for under the equity method that includes a foreign operation, while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to the Consolidated Income Statement.

When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net investment in a foreign operation and are recognised in other comprehensive income and are presented within equity in the foreign currency translation reserve.

(C) FINANCIAL INSTRUMENTS

NON-DERIVATIVE FINANCIAL INSTRUMENTS

i. Recognition and Measurement of Non-derivative Financial Assets

The Group classifies non-derivative financial assets at initial recognition as either financial assets at fair value through profit and loss or financial assets at amortised cost.

Financial assets at fair value through profit or loss

A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in profit or loss.

Financial assets at amortised cost

These assets are initially recognised at fair value plus any directly attributable transaction costs, except for trade receivables which do not contain a significant financing component and are recognised at transaction price. Subsequent to initial measurement, they are measured at amortised cost using the effective interest rate method.

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ii. Recognition and Measurement of Non-derivative Financial Liabilities

Non-derivative financial liabilities are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, these liabilities are stated at amortised cost, with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period of the borrowings on an effective interest basis. Non-derivative financial liabilities that are designated as hedged items are subject to measurement under the hedge accounting requirements.

iii. De-recognition of Non-derivative Financial Instruments

A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) is de-recognised (i.e. removed from the Group’s Consolidated Balance Sheet) when:

– The rights to receive cash flows from the asset have expired; or – The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards; or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

The Group de-recognises a financial liability when its contractual obligations are discharged or cancelled or expire.

DERIVATIVE FINANCIAL INSTRUMENTS

The Group is subject to foreign currency, interest rate, fuel price and credit risks. Derivative and non-derivative financial instruments may be used to hedge these risks. It is the Group’s policy not to enter into, issue or hold derivative financial instruments for speculative trading purposes.

Derivative financial instruments are recognised at fair value both initially and on an ongoing basis. Transaction costs attributable to the derivative are recognised in the Consolidated Income Statement when incurred. The method of recognising gains and losses resulting from movements in market prices depends on whether the derivative is a designated hedging instrument and, if so, the nature of the risk being hedged. The Group designates certain derivatives as either hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedges), or hedges of highly probable forecast transactions (cash flow hedges).

At the inception of the transactions, the Qantas Group documents the relationship between hedging instruments and hedged items, including the risk management objective and strategy for undertaking each transaction. The Qantas Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the hedging instruments that are used in hedge transactions have been and will continue to be highly effective.

i. Fair Value Hedges

Changes in the fair value of derivative financial instruments that are designated and qualify as fair value hedges are recorded in the Consolidated Income Statement, together with any changes in the fair value of the hedged asset or liability or firm commitment attributable to the hedged risk.

ii. Cash Flow Hedges

The effective portion of changes in the fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised in other comprehensive income and are presented within equity in the hedge reserve. The cumulative gain or loss in the hedge reserve is recognised in the Consolidated Income Statement in the periods when the hedged item will affect profit or loss (i.e. when the underlying income or expense is recognised). Where the hedged item is of a capital nature, the cumulative gain or loss recognised in the hedge reserve is transferred to the carrying amount of the asset when the asset is recognised.

When a hedging instrument expires or is sold, terminated or exercised, or the Qantas Group revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in the hedge reserve and is recognised in accordance with the above policy when the transaction occurs. If the underlying hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in the hedge reserve with respect to the hedging instrument is recognised immediately in the Consolidated Income Statement.

iii. Cost of Hedging

The time value of an option, the forward element of a forward contract and any foreign currency basis spread is excluded from the designation of a financial instrument and accounted for as a cost of hedging. The fair value changes of these elements are recognised in other comprehensive income and depending on the nature of the hedged item, will either be transferred to the Consolidated Income Statement in the same period that the underlying transaction affects the Consolidated Income Statement or be capitalised into the initial carrying value of a hedge and reported as ineffectiveness.


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iv. Ineffective and Non-designated Derivatives

Gains and losses on derivative financial instruments qualifying for hedge accounting are recognised in the same category in the Consolidated Income Statement as the underlying hedged item. Changes in underlying market conditions or hedging strategies could result in recognition in the Consolidated Income Statement of changes in fair value of derivative financial instruments designated as hedges.

From time to time certain derivative financial instruments do not qualify for hedge accounting, notwithstanding that the derivatives are held to hedge identified exposures. Any changes in the fair value of a derivative instrument, or part of a derivative instrument that do not qualify for hedge accounting are classified as ‘ineffective’ and recognised immediately in the Consolidated Income Statement.

v. Fair Value Calculations

The fair value of financial instruments traded in active markets is based on quoted market prices at balance date. The fair value of financial instruments that are not traded in an active market are estimated using valuation techniques consistent with accepted market practice. The Qantas Group uses a variety of methods and input assumptions that are based on market conditions existing at balance date.

The different methods of estimating the fair value of these items have been defined in the Consolidated Financial Statements as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

vi. Financial Guarantee Contracts

Financial guarantee contracts are recognised as a financial liability at the time the guarantee is issued. The liability is initially measured at fair value and subsequently at the higher of the amount determined in accordance with AASB 137: Provisions, Contingent Liabilities and Contingent Assets, and the amount initially recognised less cumulative amortisation, where appropriate.

The fair value of financial guarantees is determined as the present value of the difference in net cash flows between the contractual payments under the debt instrument and the payments that would be required without the guarantee, or the estimated amount that would be payable to a third party for assuming the obligations.

Where guarantees in relation to loans or payables of investments accounted for under the equity method are provided for no compensation, the fair values are accounted for as contributions and recognised as part of the cost of the investment.

(D) REVENUE RECOGNITION

i. Passenger and Freight Revenue

Passenger and freight revenue is measured at the fair value of the consideration received, net of sales discount, passenger and freight interline/IATA commission and Goods and Services Tax. Other sales commissions paid by the Qantas Group are included in expenditure.

Passenger revenue and freight revenue is recognised when passengers or freight are uplifted. Unused tickets are recognised as revenue using estimates based on the terms and conditions of the ticket, historic trends and experience.

Passenger recoveries (including fuel surcharge on passenger tickets) are included in net passenger revenue. Freight fuel surcharge is included in net freight revenue.

Revenue from ancillary passenger revenue, passenger services fees, lease capacity revenue and air charter revenue is recognised as revenue when the services are provided.

Receipts for advanced passenger ticket sales or freight sales which have not yet been availed or recognised as revenue are deferred on the balance sheet as revenue received in advance.

ii. Frequent Flyer Marketing Revenue

Marketing revenue associated with the issuance of frequent flyer points is recognised when the service is performed (typically on the issuance of the point). Marketing revenue is measured as the difference between the cash received on issuance of a point and the amount deferred as unrecognised redemption revenue.

iii. Frequent Flyer Redemption Revenue

Revenue received for the issuance of points is deferred as a liability (revenue received in advance) until the points are redeemed or, in the case of Qantas Group flight redemption, the passenger is uplifted. Redemption revenue is measured based on Management’s estimate of the fair value of the expected awards for which the points will be redeemed. The fair value of the awards is reduced to take into account the proportion of points that are expected to expire (breakage). Redemption revenue arising from Qantas Group flight redemptions is recognised in passenger revenue. Redemptions on other airlines are recognised in other revenue.

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iv. Frequent Flyer Membership Fee Revenue

Membership fee revenue results from the initial joining fee charged to members. Revenue is recognised on expiry of any refund period.

v. Contract Work Revenue

Contract work revenue results from the rendering of services associated with contracts. Where services performed are in accordance with contractually agreed terms over a short period and are task specific, revenue is recognised when the services have been performed or when the resulting ownership of the goods passes to the customer. Revenue on long-term contracts to provide goods or services is recognised in proportion to the stage of completion of the contract (when the stage of contract completion can be reliably measured) or otherwise on completion of the contract.

vi. Commissions Revenue

Commissions revenue is recognised where the Group acts in the capacity of an agent rather than a principal in a transaction. The revenue reported is the net amount of commissions made by the Group and is recognised as the services are performed.

vii. Aircraft Financing Fees

Fees relating to linked transactions involving the legal form of a lease are recognised as revenue only when there are no significant obligations to perform or refrain from performing significant activities and management determines there are no significant limitations on use of the underlying asset and the possibility of reimbursement is considered remote. Where these criteria are not met, fees are brought to account as revenue or expenditure over the period of the respective lease or on a basis which is representative of the pattern of benefits derived from the leasing transactions, with the unamortised balance being held in lease and hire purchase liabilities.

viii. Dividend Revenue

Dividends are recognised as revenue when the right to receive payment is established. Dividends from foreign entities are recognised net of withholding tax.

ix. Other Revenue/Income

Income resulting from claims for liquidated damages is recognised as other income when all performance obligations are met, including when a contractual entitlement exists, when it can be reliably measured and when it is probable that the economic benefits will accrue to the Qantas Group.

Revenue from Qantas Club membership fees, freight terminal fees, retail/advertising and other property revenue and other miscellaneous income is recognised as other revenue/income at the time service is provided.

Tours and travel revenue is recognised when tours and travel air tickets and land content are utilised. Tours and travel revenue is measured at the net amount of commission retained by the Qantas Group.

Gains or losses on the disposal of assets are recognised at the date the significant risks and rewards of ownership of the asset passes to the buyer, usually when the purchaser takes delivery of the asset. The gain or loss is determined by comparing the proceeds on disposal with the carrying amount of the asset.

(E) TAXES

i. Income Tax

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or in other comprehensive income.

Current Tax

Current tax liability is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at balance date and any adjustment to tax payable with respect to previous years.

Deferred Tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

– temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit; – temporary differences relating to investments in controlled entities and investments accounted for under the equity method to the extent that they will probably not reverse in the foreseeable future; or

– taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences only to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Such reductions are reversed when the probability of future taxable profits improve.


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Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantially enacted at reporting date.

Qantas provides for income tax in both Australia and overseas jurisdictions where a liability exists.

ii. Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to, the taxation authority is included as a current asset or liability in the Consolidated Balance Sheet.

The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to, the taxation authority are classified as operating cash flows.

iii. Tax Consolidation

Qantas and its Australian wholly owned controlled entities, trusts and partnerships are part of a tax consolidated group. As a consequence, all members of the tax consolidated group are taxed as a single entity.

(F) INVENTORIES

Inventories are measured at the lower of cost and net realisable value. The costs of engineering expendables, consumable stores and work in progress are assigned to the individual items of inventories on the basis of weighted average costs. Net realisable value is the estimated selling price in the ordinary course of business.

(G) IMPAIRMENT

i. Non-financial Assets

The carrying amounts of non-financial assets are reviewed at each balance date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill and intangible assets with indefinite lives, recoverable amounts are estimated at the end of each financial year.

The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. Assets which primarily generate cash flows as a group, such as aircraft, are assessed on a cash generating unit (CGU) basis, inclusive of related infrastructure and intangible assets and compared to net cash inflows for the CGU. Estimated net cash flows used in determining recoverable amounts are discounted to their net present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets.

Identification of an asset’s CGU requires judgement, as it requires identification of the lowest aggregation of assets that generate largely independent cash inflows. In Management’s judgement, the lowest aggregation of assets which give rise to CGUs as defined by AASB 136: Impairment of Assets are the Qantas Domestic CGU, Qantas International CGU, Qantas Loyalty CGU, Qantas Freight CGU and the Jetstar Group CGU.

ii. Financial Assets

The carrying value of financial assets is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate.

(H) PROPERTY, PLANT AND EQUIPMENT

i. Recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Items of property, plant and equipment are initially recorded at cost, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition.

The cost of acquired assets includes the initial estimate at the time of installation of the costs of dismantling and removing the items and restoring the site on which they are located, and changes in the measurement of existing liabilities recognised for these costs resulting from changes in the timing or outflow of resources required to settle the obligation or from changes in the discount rate. The unwinding of the discount is treated as a finance charge. The cost also may include transfers from hedge reserve of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment in accordance with Note 37(C).

Borrowing costs associated with the acquisition, construction or production of qualifying assets are recognised as part of the cost of the asset to which they relate.

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ii. Subsequent Expenditure

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.

iii. Depreciation

Depreciation is provided on a straight-line basis on all items of property, plant and equipment except for freehold land, which is not depreciated. The depreciation rates of owned assets are calculated so as to allocate the cost or valuation of an asset, less any estimated residual value, over the asset’s estimated useful life to the Qantas Group. Assets are depreciated from the date of acquisition or, with respect to internally constructed assets, from the time an asset is completed and available for use. The costs of improvements to assets are depreciated over the remaining useful life of the asset or the estimated useful life of the improvement, whichever is the shorter. Assets under finance lease are depreciated over the term of the relevant lease or, where it is likely the Qantas Group will obtain ownership of the asset, the life of the asset.

The principal asset depreciation periods and estimated residual value percentages are:

YearsResidual Value

(%)

Buildings and leasehold improvements 10 – 40 01

Plant and equipment 3 – 20 0

Passenger aircraft and engines 2.5 – 20 0 – 10

Freighter aircraft and engines 2.5 – 20 0 – 20

Aircraft spare parts 15 – 20 0 – 20

1 Certain leases allow for the sale of leasehold improvements for fair value. In these instances, the expected fair value is used as the estimated residual value.

Useful lives and residual values are reviewed annually and reassessed having regard to commercial and technological developments, the estimated useful life of assets to the Qantas Group and the long-term fleet plan.

iv. Maintenance and Overhaul Costs

An element of the cost of an acquired aircraft (owned and finance-leased aircraft) is attributed to its service potential, reflecting the maintenance condition of its engines and airframe. This cost is depreciated over the shorter of the period to the next major inspection event or the remaining life of the asset or remaining lease term.

The costs of subsequent major cyclical maintenance checks for owned and leased aircraft (including operating leases) are recognised and depreciated over the shorter of the scheduled usage period to the next major inspection event or the remaining life of the aircraft or lease term (as appropriate).

Maintenance checks which are covered by the third party maintenance agreements where there is a transfer of risk and legal obligation are expensed on the basis of hours flown.

All other maintenance costs are expensed as incurred.

Modifications that enhance the operating performance or extend the useful lives of aircraft are capitalised and depreciated over the remaining estimated useful life of the asset or remaining lease term (as appropriate). Manpower costs in relation to employees who are dedicated to major modifications to aircraft are capitalised as part of the cost of the modification to which they relate.

v. Manufacturers’ Credits

The Qantas Group receives credits from manufacturers in connection with the acquisition of certain aircraft and engines. These credits are recorded as a reduction to the cost of the related aircraft and engines. Where the aircraft are held under operating leases, the credits are deferred and reduced from the operating lease rentals on a straight-line basis over the period of the related lease as deferred credits.

vi. Capital Projects

Capital projects are disclosed within the categories to which they relate and are stated at cost. When the asset is ready for its intended use, it is capitalised and depreciated.

(I) ASSETS CLASSIFIED AS HELD FOR SALE

Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continued use are classified as held for sale. Immediately before classification as held for sale, the measurement of the assets or components of a disposal group is measured in accordance with the Qantas Group’s accounting policies. Thereafter, the assets, or disposal group, are measured at the lower of carrying amount and fair value less costs to sell. Any impairment of a disposal group is first allocated to goodwill and then to remaining assets and liabilities on a pro-rata basis, except that no loss is allocated to inventories, financial assets or deferred tax assets. These continue to be measured in accordance with the Qantas Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in the Consolidated Income Statement.


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(J) LEASES

i. Determining Whether an Arrangement Contains a Lease

At inception of an arrangement, the Group determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values for a finance lease, if the Group concludes that it is impracticable to separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate.

ii. Finance Leased and Hire Purchase Assets

Leased assets under which the Qantas Group assumes substantially all the risks and benefits of ownership are classified as finance leases. Other leases are classified as operating leases.

Finance leases are capitalised. A lease asset and a lease liability equal to the present value of the minimum lease payments and guaranteed residual value are recorded at the inception of the lease. Any gains and losses arising under sale and finance leaseback arrangements are deferred and depreciated over the lease term. Capitalised leased assets are depreciated on a straight-line basis over the period in which benefits are expected to arise from the use of those assets. Lease payments are allocated between the reduction in the principal component of the lease liability and the interest element.

Fully prepaid leases are classified in the Consolidated Balance Sheet as hire purchase assets to recognise that the financing structures impose certain obligations, commitments and/or restrictions on the Qantas Group, which differentiate these aircraft from owned assets.

iii. Operating Leases

Rental payments under operating leases are charged to the Consolidated Income Statement on a straight-line basis over the term of the lease.

Any gains and losses arising under sale and operating leaseback arrangements where the sale price is at fair value are recognised in the Consolidated Income Statement as incurred. Where the sale price is below fair value, any gains and losses are immediately recognised in the Consolidated Income Statement, except where the loss is compensated for by future lease payments at below market price, in which case the loss is deferred and amortised over the period which the asset is expected to be used. Where the sale price is above fair value, the excess over fair value is deferred and amortised over the useful life of the asset.

With respect to any premises rented under long-term operating leases, which are subject to sub-tenancy agreements, provision is made for any shortfall between primary payments to the head lessor less any recoveries from sub-tenants. These provisions are determined on a discounted cash flow basis, using a rate reflecting the cost of funds.

(K) INTANGIBLE ASSETS

i. Recognition and Measurement

Goodwill is stated at cost less any accumulated impairment losses. With respect to investments accounted for under the equity method, the carrying amount of goodwill is included in the carrying amount of the investment.

Goodwill Goodwill is stated at cost less any accumulated impairment losses. With respect to investments accounted for under the equity method, the carrying amount of goodwill is included in the carrying amount of the investment.

Airport Landing Slots Airport landing slots are stated at cost less any accumulated impairment losses.

Software Software is stated at cost less accumulated amortisation and impairment losses. Software development expenditure, including the cost of materials, direct labour and other direct costs, is only recognised as an asset when the Qantas Group controls future economic benefits as a result of the costs incurred and it is probable that those future economic benefits will eventuate and the costs can be measured reliably.

Brand Names and Trademarks Brand names and trademarks are carried at cost less any accumulated impairment losses.

Customer Contracts/Relationships

Customer contracts/relationships are carried at their fair value at the date of acquisition less accumulated amortisation and impairment losses.

Contract Intangible Assets Contract intangible assets are stated at cost less accumulated amortisation. Amortisation commences when the asset is ready for use.

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ii. Subsequent Expenditure

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the Consolidated Income Statement as incurred.

iii. Amortisation

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values using the straight-line method over their estimated useful lives and is recognised in the Consolidated Income Statement. Goodwill, Brand Names and Trademarks and Airport Landing Slots are indefinite lived intangible assets and are allocated to the relevant CGU. These indefinite lived intangible assets are not amortised but tested annually for impairment. Contract intangible assets is not amortised until such time the intangible asset is ready for use, but tested annually for impairment.

Years

Software 3 – 10

Customer Contracts/Relationships 5 – 10

(L) EMPLOYEE BENEFITS

Wages, Salaries, Annual Leave and Sick Leave

Liabilities for wages, salaries, annual leave (including leave loading) and sick leave vesting to employees are recognised in respect of employees’ services up to the end of the reporting period. These liabilities are measured at the amounts expected to be paid when they are settled and include related on-costs, such as workers compensation insurance, superannuation and payroll tax. The annual leave provision is discounted using Corporate Bond rates which most closely match the terms to maturity of the provision. The unwinding of the discount is treated as a finance charge.

Employee Share Plans The grant date fair value of equity-settled share-based payment awards granted to employees is generally recognised as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions (such as market performance conditions), the grant date fair value of the share-based payment is measured to reflect such conditions and that there is no true-up for differences between expected and actual outcomes.

The fair value of equity-based entitlements settled in cash is recognised as an employee expense with a corresponding increase in liability over the period during which employees unconditionally become entitled to payment. The liability is remeasured at each reporting date and at settlement date based on the fair value. Any changes in the fair value of the liability are recognised as an employee expense in the Consolidated Income Statement.

Long Service Leave The liability for long service leave is recognised as a provision for employee benefits and measured at the present value of estimated future payments to be made in respect of services provided by employees up to the end of the reporting period. The provision is calculated using expected future increases in wage and salary rates including related on-costs and expected settlement dates based on staff turnover history. The provision is discounted using Corporate Bond rates which most closely match the terms to maturity of the provision. The unwinding of the discount is treated as a finance charge.

Defined Contribution Superannuation Plans

The Qantas Group contributes to employee defined contribution superannuation plans. Contributions to these plans are recognised as an expense in the Consolidated Income Statement as incurred.

Defined Benefit Superannuation Plans

The Qantas Group’s net obligation with respect to defined benefit superannuation plans is calculated separately for each plan. The Qantas Superannuation Plan has been split based on the divisions which relate to accumulation members and defined benefit members. Only defined benefit members are included in the Qantas Group’s net obligation calculations. The calculation estimates the amount of future benefit that employees have earned in return for their service in the current and prior periods, which is discounted to determine its present value, and the fair value of any plan assets is deducted.

The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. To calculate the present value of economic benefits, consideration is given to any applicable minimum funding requirements.


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Defined Benefit Superannuation Plans (continued)

Remeasurements of the net defined benefit liability or asset, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in the Consolidated Income Statement.

The discount rate used is the Corporate Bond rate which has a maturity date that approximates the terms of Qantas obligations.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Employee Termination Benefits

Termination benefits are expensed at the earlier of when the Group can no longer withdraw the offer of those benefits and when the Group recognises costs for a restructuring. If benefits are not expected to be settled wholly within 12 months of the end of the reporting period, then they are discounted.

(M) PROVISIONS

A provision is recognised if, as a result of a past event, there is a present legal or constructive obligation that can be measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

If the effect is material, a provision is determined by discounting the expected future cash flows required to settle the obligation at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is treated as a finance charge.

Onerous Contracts A provision for onerous contracts is measured at present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

Make Good on Leased Assets Aircraft – a provision for return costs to meet contractual return aircraft minimum conditions, at the end of the lease terms for the aircraft under operating leases, are recognised over the lease term.

Property and environment – where the occupation of property or land gives rise to an obligation for site closure or rehabilitation, the Group recognises a provision for the costs associated with restoration.

Insurance, Legal and Other Insurance – the Qantas Group is a licenced self-insurer under the Safety, Rehabilitation and Compensation Act 1988, New South Wales Workers Compensation Act, the Victorian Accident Compensation Act and the Queensland Workers’ Compensation and Rehabilitation Act. Qantas has made provision for all notified assessed workers compensation liabilities, together with an estimate of liabilities incurred but not reported, based on an independent actuarial assessment. The provision is discounted using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the liabilities and have maturity dates approximating the terms of Qantas’ obligations. Workers compensation for all remaining employees is commercially insured.

Legal and other provisions – these are recognised where they are incurred as a result of a past event, there is legal or constructive obligation that can be measured reliably and it is probable that an outflow of economic benefits will be required to settle the obligation.

(N) NET FINANCE COSTS

Net finance costs comprise interest payable on borrowings calculated using the effective interest method, unwinding of the discount on provisions and receivables, interest receivable on funds invested and gains and losses on mark-to-market movement in fair value hedges.

Finance income is recognised in the Consolidated Income Statement as it accrues, using the effective interest method.

Finance costs are recognised in the Consolidated Income Statement as incurred, except where interest costs relate to qualifying assets in which case they are capitalised to the cost of the assets. Qualifying assets are assets that necessarily take a substantial period of time to be made ready for intended use. Where funds are borrowed generally, borrowing costs are capitalised using the average interest rate applicable to the Qantas Group’s debt facilities.


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(O) SHARE CAPITAL

i. Ordinary Shares

Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction from equity, net of any related income tax benefit.

ii. Repurchase of Share Capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs is recognised as a deduction from equity.

iii. Treasury Shares

Shares held by the Qantas sponsored Employee Share Plan Trust are recognised as treasury shares and deducted from equity.

(P) COMPARATIVES

Where applicable, various comparative balances have been reclassified to align with current period presentation.

38. APPLICATION OF NE W OR RE VISED ACCOUNTING STANDARDSExcept for the changes below, the Group has consistently applied the accounting policies set out in Note 37 to all periods presented in these Consolidated Financial Statements.

The Group has adopted the following new standards and amendments to standards with a date of initial application of 1 July 2014.

AASB 9 Financial Instruments

The Group early adopted AASB 9: Financial Instruments as amended in December 2013 (AASB 9 (2013)) with a date of initial application of 1 July 2014. This standard replaced AASB 139 Financial Instruments: Recognition and Measurement (AASB 139).

The impact of this standard for the Qantas Group is as follows:

Classification and Measurement

The Group has classified its financial assets and financial liabilities in accordance with AASB 9 (2013). There were no changes in measurement of the Group’s financial assets and financial liabilities as a result of the changes in classification required by AASB 9 (2013).

Hedge accounting

AASB 9 (2013) introduced a new hedge accounting model to simplify hedge accounting outcomes and more closely align hedge accounting with risk management objectives. Some of the key improvements in the standard impacting the Qantas Group include:

– Risk components – AASB 9 (2013) permits hedge accounting for a non-financial component of an economic risk that is separately identifiable and measurable. The Qantas Group uses options and swaps on jet kerosene, gasoil and crude oil to hedge exposure to movements in the price of aviation fuel. Previously under AASB 139, non-financial components of aviation fuel price, such as crude oil, were prohibited from being designated as hedged items and as a result, ineffectiveness occurred due to the differences in the mark-to-market movements of crude oil derivatives compared to the underlying aviation fuel exposure. The designation of component hedges has reduced the changes in fair value of derivative financial instruments recognised immediately in the Consolidated Income Statement as ‘ineffective and non-designated derivatives’

– Cost of hedging – AASB 9 (2013) allows the time value of an option, the forward element of a forward contract and any foreign currency basis spread to be excluded from the designation of a financial instrument and accounted for as a cost of hedging. The fair value changes of these elements are recognised in other comprehensive income and depending on the nature of the hedged item will either be transferred to the Consolidated Income Statement in the same period that the underlying transaction affects the Consolidated Income Statement or be capitalised into the initial carrying value of a hedged item. Under AASB 139, the Group recognised the change in these elements in the Consolidated Income Statement. This change has reduced the changes in the fair value of derivative financial instruments recognised in the Consolidated Income Statement as ‘ineffective and non-designated derivatives’

– Aggregated exposures – Under AASB 9 (2013), the Group has the ability to hedge an aggregated exposure that is a combination of a derivative and a non-derivative exposure. This has allowed the Qantas Group to designate economic hedging relationships as accounting hedges, which would not have qualified under AASB 139. This change has reduced the changes in fair value of derivative financial instruments recognised in the Consolidated Income Statement as ‘ineffective and non-designated derivatives’

– Hedge effectiveness – AASB 9 (2013) requires that the hedge effectiveness assessment be forward-looking and does not prescribe defined effectiveness parameters. Under AASB 139, an entity had to test effectiveness both retrospectively and prospectively and hedge accounting could only be applied if the relationship was 80 to 125 per cent effective. Under AASB 9 (2013), ineffectiveness is the extent to which the changes in the fair value or the cash flows of the hedging instrument are greater or less than those on the hedged item. This change has not had a material impact on the Consolidated Income Statement

The Group has applied AASB 9 (2013) on a prospective basis. Accordingly, there was no retrospective adjustment to the Group results.


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39. NE W STANDARDS AND INTERPRE TATIONS NOT YE T ADOP TEDThe following table details the standards, amendments to standards and interpretations that have been identified as those which may impact the Qantas Group in the period of initial application. They are available for early adoption at 30 June 2015, but have not been applied in preparing these Consolidated Financial Statements.

Topic Key requirements Effective date for Qantas

AASB 15 Revenue from Contracts with Customers (AASB 15)

AASB 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and AASB Interpretation 13 Customer Loyalty Programmes.

AASB 15 is expected to be effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

Qantas is assessing the potential impact on the Consolidated Financial Statements resulting from the application of AASB 15 for the financial year ending 30 June 2019.

AASB 9 Financial Instruments (AASB 9 (2014))

AASB 9 (2014) amends AASB 9 (2013) to include a new expected credit loss model for calculating impairment on financial assets.

AASB 9 (2014) is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted.

This standard is not expected to have a material impact on the financial statements of the Group.

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DIRECTORS’ DECL ARATIONFOR THE YEAR ENDED 30 JUNE 2015

1 In the opinion of the Directors of Qantas Airways Limited (Qantas):

(a) The Consolidated Financial Statements and Notes, and the Remuneration Report set out on pages 28 to 46 in the Directors’ Report, are in accordance with the Corporations Act 2001, including:

(i) giving a true and fair view of the financial position of the Qantas Group as at 30 June 2015 and of its performance for the financial year ended on that date;

(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and

(b) There are reasonable grounds to believe that Qantas will be able to pay its debts as and when they become due and payable.

2 There are reasonable grounds to believe that Qantas and the controlled entities will be able to meet any obligations or liabilities to which they are or may become subject to by virtue of the Deed of Cross Guarantee between Qantas and those controlled entities pursuant to ASIC Class Order 98/1418.

3 The Directors have been given the declarations required by section 295A of the Corporations Act 2001 from the Chief Executive Officer and the Chief Financial Officer for the year ended 30 June 2015.

4 The Directors draw attention to Note 1(A) which includes a statement of compliance with International Financial Reporting Standards.

Signed in accordance with a Resolution of the Directors:

Leigh Clifford Alan Joyce Chairman Chief Executive Officer

28 August 2015 28 August 2015

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To the Members of Qantas Airways Limited

REPORT ON THE FINANCIAL REPORT

We have audited the accompanying Financial Report of Qantas Airways Limited (Qantas), which comprises the Consolidated Balance Sheet as at 30 June 2015, and Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement for the year ended on that date, Notes 1 to 39 comprising a summary of significant accounting policies and other explanatory information and the Directors’ Declaration of the Group comprising Qantas and the entities it controlled at the year’s end or from time to time during the financial year (Qantas Group).

Directors’ Responsibility for the Financial Report

The Directors of Qantas are responsible for the preparation of the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the Financial Report that is free from material misstatement whether due to fraud or error. In Note 1(A), the Directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the Financial Statements of the Group comply with International Financial Reporting Standards.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Financial Report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the Financial Report is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Financial Report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the Financial Report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the Financial Report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the Financial Report.

We performed the procedures to assess whether in all material respects the Financial Report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards, a true and fair view which is consistent with our understanding of the Group’s financial position and of its performance.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s Opinion

In our opinion:

a. The Financial Report of the Qantas Group is in accordance with the Corporations Act 2001, including:i. giving a true and fair view of the Qantas Group’s financial

position as at 30 June 2015 and of its performance for the year ended on that date; and

ii. complying with Australian Accounting Standards and the Corporations Regulations 2001.

b. The Financial Report also complies with International Financial Reporting Standards as disclosed in Note 1(A).

REPORT ON THE REMUNERATION REPORT

We have audited the Remuneration Report included in the Directors’ Report for the year ended 30 June 2015. The Directors of Qantas are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with auditing standards.

Auditor’s Opinion on the Directors’ Remuneration Report

In our opinion, the Remuneration Report of Qantas Airways Limited for the year ended 30 June 2015, complies with Section 300A of the Corporations Act 2001.

KPMG

Duncan McLennan Partner

Sydney 28 August 2015

INDEPENDENT AUDITOR’S REPORTFOR THE YEAR ENDED 30 JUNE 2015

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

Limited liability by a scheme approved under Professional Standards Legislation

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TWENTY LARGEST SHAREHOLDERS

ShareholdersOrdinary Shares

Held% of Issued

Shares

1 HSBC Custody Nominees (Australia) Limited 521,995,188 23.77

2 J P Morgan Nominees Australia Limited 440,201,130 20.04

3 National Nominees Limited 316,711,700 14.42

4 Citicorp Nominees Pty Limited 244,932,665 11.15

5 Citicorp Nominees Pty Limited (Colonial First State Inv A/C) 105,680,455 4.81

6 BNP Paribas Noms Pty Ltd 55,175,285 2.51

7 HSBC Custody Nominees (Australia) Limited 26,944,701 1.23

8 AMP Life Limited 24,991,521 1.14

9 National Nominees Limited (N A/C) 15,312,264 0.70

10 SBN Nominees Pty Limited 13,800,000 0.63

11 Pacific Custodians Pty Limited 12,670,506 0.58

12 Share Direct Nominees Pty Ltd 8,426,759 0.38

13 HSBC Custody Nominees (Australia) Limited-GSCO ECA 4,647,969 0.21

14 RBC Investor Services Australia Nominees P/L 4,519,711 0.21

15 BNP Paribas Nominees Pty Ltd 4,102,036 0.19

16 Kilby Pty Ltd 4,000,000 0.18

17 Bond Street Custodians Limited 3,720,016 0.17

18 HSBC Custody Nominees (Australia) Limited – A/C 2 3,431,034 0.16

19 UBS Nominees Pty Ltd 3,420,000 0.16

20 UBS Nominees Pty Ltd 3,231,493 0.15

Total 1,817,914,433 82.77

DISTRIBUTION OF ORDINARY SHARES

Analysis of ordinary shareholders by size of shareholding:

Number of SharesOrdinaryShares

HeldNumber of

Shareholders% of Issued

Shares

1–1,0001 20,434,761 40,625 0.93

1,001–5,000 127,459,275 51,655 5.80

5,001–10,000 58,169,655 8,355 2.65

10,001–100,000 101,002,119 4,612 4.60

100,001 and over 1,889,264,440 200 86.02

Total 2,196,330,250 105,447 100.00

1 1,002 shareholders hold less than a marketable parcel of shares in Qantas, as at 24 July 2015.

SUBSTANTIAL SHAREHOLDERS

The following shareholders have notified that they are substantial shareholders of Qantas:

ShareholdersOrdinary Shares

Held% of Issued

Shares

Commonwealth Bank of Australia1 207,369,897 9.44

UBS AG and its related bodies corporate2 166,950,222 7.60

Franklin Resources, Inc.3 145,465,122 6.62

Westpac Banking Corporation Group4 136,925,095 6.23

1 Substantial shareholder notice dated 22 June 2015.2 Substantial shareholder notice dated 2 December 2014.3 Substantial shareholder notice dated 9 July 2015.4 Substantial shareholder notice dated 17 March 2015.

SHAREHOLDER INFORMATIONThe shareholder information set out below was applicable as at 24 July 2015.

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2015 2016

26 February Half year results announcement 23 February Half year results announcement

30 June Year end 7 March Record date for interim dividend*

20 August Preliminary final results announcement 8 April Interim dividend payable*

23 October Annual General Meeting 30 June Year end

24 August Preliminary final results announcement

8 September Record date for final dividend*

12 October Final dividend payable*

21 October Annual General Meeting

* Subject to a dividend being declared by the Board.

2015 ANNUAL GENERAL MEETING

The 2015 AGM of Qantas Airways Limited will be held at 11:00am on Friday 23 October in Perth.

Further details are available in the Investors section on the Qantas website (www.qantas.com)

COMPANY PUBLICATIONS

In addition to the Annual Report the following publications can be accessed from www.qantas.com:

– Annual Review; – Databook; – Traffic and Sustainability Statistics; – Corporate Governance Statement; and – Workplace Gender Equality Report.

REGISTERED OFFICE

Qantas Airways Limited ABN 16 009 661 901

10 Bourke Road, Mascot NSW 2020 Australia

Telephone +61 2 9691 3636

Facsimile +61 2 9490 1888

www.qantas.com

QANTAS SHARE REGISTRY

Link Market Services Limited

Level 12, 680 George Street, Sydney NSW 2000 Australia; or Locked Bag A14, Sydney South NSW 1235 Australia

Telephone 1800 177 747 (toll free within Australia) International +61 2 8280 7390 Facsimile +61 2 9287 0303

Email [email protected]

STOCK EXCHANGE

Australian Securities Exchange

Exchange Centre, 20 Bridge Street, Sydney NSW 2000 Australia

DEPOSITARY FOR AMERICAN DEPOSITARY RECEIPTS

BNY Mellon

Depositary Receipts Division 22nd Floor, 101 Barclay Street, New York NY 10286 USA

Telephone +1 212 815 2293 Facsimile +1 212 571 3050

ADDITIONAL SHAREHOLDER INFORMATION

Using your Shareholder Reference Number (SRN) or Holder Identification Number (HIN) and postcode of your registered address you are able to view your holding online through Qantas’ share registry, Link Market Services, by logging on at www.linkmarketservices.com.au, where you will have the option to:

– view your holding balance; – retrieve holding statements; – review your dividend payment history; and – access shareholder forms.

The Investor Centre also allows you to update or add details to your shareholding, including the following:

– change or amend your address if you are registered with an SRN; – nominate or amend your direct credit payment instructions; – set up or amend your DRP instructions; – sign up for electronic communications; and – add/change TFN/ABN details.

COMPANY SECRETARIES

Andrew FinchSarah UdyJohn Morris

An electronic copy of this Annual Report is available at www.qantas.com

FINANCIAL CALENDAR AND ADDITIONAL INFORMATION

Q A N T A S A I R W A Y S L I M I T E DA B N 1 6 0 0 9 6 6 1 9 0 1

Documents

Qantas Annual Report 2015